Leslie Massey
Getting a good car loan rate in Australia depends on a variety of factors, including your credit score, income, employment status, and the type of car you're buying. Lenders view borrowers with high credit scores as more trustworthy, and as a result, offer them lower interest rates. Additionally, secured car loans, where the vehicle is used as collateral, often have lower interest rates than unsecured loans. The type of car you're buying can also impact the loan rate, with newer cars typically having lower rates than older models, and electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) often qualifying for the cheapest loans. It's important to shop around and compare rates from multiple lenders to find the best deal, but be cautious of making multiple loan applications in a short period, as this can negatively affect your credit score.
| Characteristics | Values |
|---|---|
| Credit score | A good credit score can help you qualify for a loan with most lenders. A score of above 669 is considered good by Equifax. |
| Income | A high and reliable income can help qualify for a lower interest rate. The average yearly income of applicants is $120,481. |
| Employment | Being employed full-time and having sustained employment in the same job and industry can help qualify for a lower interest rate. |
| Debt | Lower levels of overall debt can help qualify for a lower interest rate. |
| Car type | Secured car loans are generally considered less risky for lenders and often have lower interest rates than unsecured loans. Loans for newer cars tend to have lower rates than older models. |
| Interest rates | Most car loan interest rates in Australia are fixed. The cheapest car loans are generally for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs). |
| Comparison rate | This gives a closer estimate of the overall cost of the loan based on interest and fees. Lenders are legally obliged to show this when advertising car loans. |
| Loan features | Some lenders offer the ability to make free extra repayments and clear debt ahead of schedule without penalty. |
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What You'll Learn
Credit score impact
Credit scores are calculated by a reporting agency based on an individual's borrowing history. The score tells potential lenders how reliable the individual is as a borrower. A good credit score indicates a history of repaying debts and bills on time and in full. Lenders like borrowers with a proven track record of managing credit responsibly, and they will generally offer lower interest rates to individuals with higher credit scores.
In Australia, there is no minimum credit score that applies universally to all lenders, but the better your score, the higher your chances of being approved. According to Finder, a good credit score is normally above 620. Equifax, one of the major credit reporting companies operating in Australia, classifies anything above 669 as being a 'good' credit score.
Each time an individual submits an application for a credit product, the lender will conduct a 'hard inquiry' credit check, which can impact their credit score. Submitting multiple credit applications in a short period can cause an individual's credit score to dip, as it can signal to lenders that the individual is in financial distress. Therefore, it is recommended to space out applications as far apart as possible.
An individual's credit score can be improved by paying bills on time, paying more than the minimum required amount, and making regular repayments.
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Secured vs unsecured loans
When it comes to taking out a car loan in Australia, it's important to understand the difference between secured and unsecured loans. Both types of loans have their own pros and cons, and the right choice for you will depend on your individual circumstances.
A secured loan requires collateral, such as a property, vehicle, inventory, or savings account. The lender may seize these assets if you default on the loan. Secured loans typically offer lower interest rates than unsecured loans, and you may be able to take out the loan for a longer period. They are generally easier to obtain, even with a poor credit history, as long as the lender deems your collateral acceptable. Interest rates for secured loans in Australia currently range from 6.5% to 9%.
On the other hand, an unsecured loan does not require physical assets as collateral. Instead, the lender will evaluate the strength and cash flow of your business or your credit score, income, and banking history to determine your eligibility and interest rate. Unsecured loans tend to attract higher interest rates due to the heightened risk for the lender. The interest rates for unsecured loans in Australia can vary, ranging from 6.99% to 19.99%.
It's worth noting that defaulting on an unsecured loan could result in court action by the lender to retrieve the outstanding debt. However, most lenders have financial hardship assistance policies in place to help borrowers before resorting to such measures.
When considering a car loan, it's important to shop around for competitive rates and check your credit score beforehand. Additionally, be mindful of hidden fees and use the comparison rate to get a closer estimate of the overall cost of the loan.
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Electric vehicle loans
A good car loan rate in Australia depends on a variety of factors, including your credit score, income, and employment status. Lenders offer lower rates to borrowers with higher credit scores, as this indicates a history of repaying debts and bills on time and in full.
When it comes to electric vehicle (EV) loans in Australia, several banks and financial institutions offer specialised green or EV loans with preferential rates to encourage the adoption of environmentally friendly vehicles. Here are some examples:
Westpac Electric Car Loan
Westpac offers an Electric Car Loan with a preferential rate for eligible electric or hybrid vehicles. This loan includes an EV rate discount, and there is no fee for making extra repayments. However, a prepayment fee may apply. To be eligible, you must meet certain criteria, such as having an acceptable visa with a minimum validity period and a fixed, verifiable Australian address.
Bendigo Bank Secured Green Personal Loan
Bendigo Bank offers a Secured Green Personal Loan suitable for the purchase of electric vehicles (EVs), plug-in hybrid electric vehicles (PHEVs), hybrid vehicles, and 'A' rated vehicles emitting less than 110g of CO2 per kilometre. This loan features a competitive fixed interest rate of 5.49% p.a., with a comparison rate of 5.84% p.a. The minimum loan amount is $2,000, and you can choose repayment terms between 1 and 7 years. Bendigo Bank also offers unlimited additional repayments with no fixed break costs and an early repayment fee of only $20.
CommBank Electric & Hybrid Vehicle Finance
CommBank provides discounted finance solutions for eligible electric and plug-in hybrid vehicles. They offer a special rate of 5.29% p.a. (comparison rate 6.72% p.a.) on a Secured Personal Loan, which includes an energy-efficient discount for eligible essential workers or individuals with a gross income of less than $100,000 p.a. purchasing a vehicle up to $55,000. CommBank also offers cashback incentives of up to $400 for Yello customers who purchase through their Buy and Own a Car platform.
It is important to note that the availability and specifics of EV loans may vary depending on the lender and your individual circumstances. Be sure to compare multiple options and consider your financial situation before committing to any loan.
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Loan comparison tools
A good car loan interest rate in Australia is generally considered to be below 8%. The interest rate you pay on your loan can make a huge difference to the cost of your monthly repayments and how much you end up paying overall.
There are several loan comparison tools available to help you find the best car loan interest rates in Australia. These tools allow you to compare interest rates, fees, and loan features from multiple lenders. Here are some popular loan comparison tools in Australia:
- Canstar: Canstar is one of Australia's leading comparison websites, offering a comprehensive car loan comparison tool. You can compare more than 300 products from over 60 providers and filter your search results to find the right product for you. Canstar's comparison selector tool allows you to find the lowest car loan interest rates and filter results by the lowest advertised rate.
- Finder: Finder is another popular comparison website in Australia, offering a car loan interest rate comparison of 100+ loans from Australian lenders. You can compare rates, click to explore further, and apply without providing an email address or phone number.
- Money.com.au: This website provides a car loan interest rate comparison tool, showcasing rates from 5.09%. It also offers guides on financing options and deals available for popular car manufacturers in Australia.
- Savvy.com.au: Savvy has been helping Australians find their ideal car loan package for 15 years. They are partnered with over 40 car loan providers and can help you find the lowest rates and the most affordable deal for your profile.
When using loan comparison tools, it is important to consider not only the interest rate but also the comparison rate, which includes any fees and charges to give you a true cost of the loan. Additionally, be mindful of your credit score, as it can impact the interest rates offered to you by lenders.
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Income and employment
Income
Lenders will typically require proof of income to determine whether you can afford the loan. They may ask for your most recent payslips, bank statements, and home loan statements. The higher your income, the more likely you are to qualify for a lower interest rate. For example, Money.com.au reports that the average yearly income of applicants in their database is $120,481.
Employment
Your employment status also plays a significant role in determining your interest rate. Most lenders prefer borrowers with stable employment, and full-time employees generally qualify for lower interest rates. According to Money.com.au, 80.14% of car loan applicants in their database were employed full-time, while 9.25% were part-time, 7.43% casual, and 3.12% had other types of employment.
If you are self-employed or a business owner without traditional sources of income, you may still be eligible for a low doc car loan, but these usually come with higher interest rates. Lenders offering low doc car loans typically require less paperwork, such as a declaration of income from an accountant or your ABN or ACN if relevant.
Additionally, some lenders consider whether you own a property when calculating your car loan interest rate. Property owners, especially those with a high level of equity in their property, often qualify for lower interest rates as they are seen as less risky borrowers.
It's important to note that your credit score is also closely tied to your income and employment situation. A good credit score indicates a history of repaying debts and bills on time and in full, which lenders view as a positive sign when assessing your loan application.
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Frequently asked questions
The average fixed-term personal loan rate, including car loans, is 9.68% per annum, according to the Reserve Bank of Australia. However, a good car loan rate for you will depend on your credit score, income, and overall debt, among other factors. Borrowers with the highest credit scores generally qualify for the best car finance rates in Australia.
To get a good car loan rate, you should maintain a clean credit history, have a high and reliable income, and keep your overall debt low. You should also shop around to see which lenders are offering the lowest rates for your particular circumstances.
Equifax, one of the major credit reporting companies operating in Australia, classifies anything above 669 as a 'good' credit score. Having a good credit score means you would be eligible for a loan with most lenders, depending on your other circumstances.
