Vehicle - How can I get a low rate car loan?

Factors that influence your interest rates

If you're looking for a low interest car loan, there are some factors that could influence the rate you end up paying.

Secured Loan

Getting a secured car loan means the car (or sometimes other collateral) is security for the amount you're borrowing. This means the car can be seized by the lender if you default on your loan commitments. As a result you will typically pay a lower interest rate for a secured loan than for an unsecured loan.

If you're buying a used car make sure you check the rules on secured loans with your lender up front - if you're tossing up between two cars that are slightly different ages one might not be eligible to be security for a loan and you'll pay a higher interest rate.

Loan term

Some lenders offer lower annual interest rates for longer loan repayment terms.

If you were planning to pay your loan off over four or five years, compare lenders based on the rates they charge for these specific terms so you're comparing apples with apples.

However, don't extend your loan term just to get a lower annual interest rate. A lower interest rate means you're paying a lower percentage each year, but by unnecessarily adding years to the repayment period the total amount of interest you pay over the life of the loan increases.

Tip: If you're considering opting for a longer loan term to reduce your repayments, but intend pay the loan out early, check to make sure you won't be charged a penalty fee to recover the interest the lender has missed out on.

Credit quality

While not standard practice for all lenders, your credit risk profile can influence your interest rate. This is a similar to concept to insurance - if you have the profile of a low risk driver you pay a lower insurance premium, and vice versa, rather than everyone paying the same amount.

For car finance rather than your driving profile it is your likelihood for the loan to 'go bad' that is assessed, and if you are low risk some lenders could quote you a lower interest rate.

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