The average car finance interest rate
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THE AVERAGE CAR FINANCE INTEREST RATE​
What is the average car finance interest rate?
This is a moving feast due to the frequency of Reserve Bank interest rate rises recently. Getting an average interest rate is also complicated by the fact that there are so many lenders in the market, and so many different car finance products such as personal car loans, business car loans and unsecured car loans.
You can find out the lowest rates available for each of the different types of car finance by contacting our experienced team of brokers at National Loans.
What factors influence car finance interest rates?
The main factors that affect car finance interest rates are:
- whether the finance is secured or unsecured (more on this in the next section).
- market interest rates.
- whether you take out a fixed or variable interest rate (more on this later).
- your credit score (more on this later too).
- the type of vehicle you are buying (new car loans tend to have lower interest rates than used car loans, and some lenders will even offer lower rates for electric or hybrid vehicles).
- whether or not you can provide a deposit (and if so, how much).
What is the difference between secured and unsecured car finance?
Fixed versus variable rate car finance
When you take out car finance, you have the option of choosing a fixed or variable interest rate.
As the name suggests, a fixed interest rate stays the same for the term of your loan, regardless of any changes in market interest rates. Standard car loan terms are between one and seven years. Your repayments will remain the same even if market rates rise or fall. Fixed rate car finance gives you repayment certainty.
A variable interest rate on the other hand moves up or down based on market interest rate movements. If rates rise (as they have been regularly over the past year) and you have a variable rate car loan, then your interest rate and your repayments will also rise.
However, if interest rates rise and you have a fixed rate, then you will be better off if rates rise by more than your fixed rate. If they don’t, you will be worse off. Unfortunately, no one knows for sure what interest rates will do. But fixed car finance rates in the market are currently higher than variable rates. This is an indication that lenders expect further interest rate increases.
How does your credit score affect your car finance interest rate?
Your credit score is compiled in Australia by credit reporting agencies. Lenders check it when you apply for a loan. If you have a good credit score, you will be eligible for a lower interest rate.
How to get a low car finance interest rate
There are some smart strategies you can use to get a low car finance interest rate:
- Avoid dealer finance
- Dealer finance is usually expensive because it favours the dealer rather than the buyer.
- Use the services of an experienced car finance broker
- Car finance brokers work for car buyers, not car dealers or private car sellers. They strive to get a great deal for car buyers.
- Check and improve your credit score before you apply
- You can check your credit score for free before you apply for any finance via agencies like Equifax, Experian and illion. If your credit score isn’t as good as it could be, you can improve it before you apply for car finance by reducing the number of credit cards you have, paying any overdue debts you might have, and ensuring you make all your future repayments on time.
Be aware though that your credit score won’t improve immediately, it is compiled over time. - Use the services of an experienced car finance broker
- In general, the more deposit you can provide, the more potential to get a lower interest rate.
Interest rate FAQs
Why are there two interest rates listed on car finance products?
What is the comparison rate?
How much do higher interest rates affect repayments?
| Interest rate | Monthly repayment | Total repayment |
|---|---|---|
| 5% | $424 | $35,617 |
| 6% | $438 | $36,814 |
| 7% | $453 | $38,034 |
| 8% | $468 | $39,277 |
| 9% | $483 | $40,544 |
| 10% | $498 | $41,835 |
