Leslie Massey
The average car loan interest rate in Australia is influenced by several factors, including an individual's credit score, income, and debt. Lenders typically offer lower interest rates to borrowers with higher credit scores, stable employment, and lower debt levels. The type of car, such as electric or hybrid vehicles, and its age can also impact the interest rate. Additionally, comparison rates that consider fees and charges provide a more accurate estimate of the overall cost of the loan. Maintaining a good credit history and shopping around for competitive rates can help individuals secure favourable car loan interest rates in Australia.
| Characteristics | Values |
|---|---|
| Average car loan interest rate in Australia | From 5.09% |
| Average fixed-term personal loan rate (including car loans) | 9.68% p.a. |
| Interest rate with an excellent credit history | 7.00%/7.00%/6.29% p.a. |
| Interest rate with a below-average credit score | Higher than average |
| Interest rate with a bad credit score | Higher than average |
| Interest rate for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) | Lower than average |
| Interest rate for newer cars | Lower than average |
| Interest rate for used cars | Higher than for new cars |
| Interest rate for secured loans | Lower than for unsecured loans |
| Interest rate for full-time employment | Lower than average |
| Interest rate for part-time employment | Higher than for full-time employment |
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What You'll Learn
How to get a low-interest car loan
The average fixed-term personal loan rate in Australia, including car loans, is 9.68% per annum. However, the interest rate you pay depends on several factors, such as your credit score, income, debt, employment status, the type of car, and the size and term of the loan. Here are some tips to help you secure a low-interest car loan:
Improve your credit score
A good credit score can increase your chances of qualifying for a lower interest rate. Make timely payments on your existing debts, reduce outstanding balances, and avoid opening new credit accounts. A higher score may qualify you for better loan terms, while a lower score may result in higher interest rates.
Compare interest rates and loan terms from various lenders
Don't settle for the first offer. Explore multiple options to find the most competitive rate. Comparison rates, which include interest and fees, provide a more accurate reflection of the loan's overall cost. Online lenders often have the lowest rates and can approve loans quickly.
Consider a secured car loan
Car loans are usually secured by the vehicle being purchased, meaning the lender can repossess and sell the car if you default. This reduces the risk for the lender, so secured loans typically have lower interest rates than unsecured loans.
Opt for a new car
Newer cars may qualify for slightly lower interest rates due to slower depreciation and warranty coverage, reducing lender risk. On average, new car loans have lower interest rates than used car loans.
Choose an electric or hybrid vehicle
Around 40% of lenders offer discounted interest rates for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs) to encourage the adoption of eco-friendly technology.
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Comparison rates vs. advertised rates
When comparing car loan options, it's important to look beyond the advertised interest rate. Advertised rates are often misleading, and it's crucial to understand the difference between comparison rates and advertised rates.
The comparison rate provides a more accurate reflection of the overall cost of your car loan. It takes into account not just the interest rate but also most ongoing fees and charges. This rate is designed to give you a closer estimate of the total cost of the loan per year. Legally, car loans must be advertised with a comparison rate, and this rate should be displayed alongside the advertised rate. If the comparison rate is much higher than the advertised rate, it's a red flag, and you should investigate further.
The interest rate you pay on your loan can significantly impact your monthly repayments and the total cost of the loan over its lifetime. The advertised rate may not always be the rate you end up paying, as lenders set interest rates on a case-by-case basis. Your credit score, income, debt, employment status, and loan term can all influence the interest rate you qualify for.
To get the best car loan rate, it's recommended to compare personalised quotes from multiple lenders. A higher credit score generally qualifies for better finance rates, and borrowers with excellent credit scores tend to get the lowest interest rates. Additionally, newer cars may qualify for slightly lower interest rates due to slower depreciation and warranty coverage, reducing lender risk.
It's also worth noting that car loan interest rates generally come in ranges, and your actual rate within that range will depend on your application. A higher loan-to-value ratio (LVR) may result in a higher interest rate. Furthermore, some lenders offer discounted rates for electric vehicles (EVs) and plug-in hybrid electric vehicles (PHEVs).
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Credit score impact on loan interest rates
The average fixed-term personal loan rate, including car loans, in Australia is 9.68% per annum. However, this rate can vary depending on an individual's credit score. A credit score is a number that represents an individual's risk of future defaults based on their credit history. Lenders use this score to assess an individual's application for credit. A high credit score indicates a good repayment history and manageable debt, while a low credit score suggests missed repayments or too much debt.
Lenders prefer borrowers with a proven track record of managing credit responsibly, and a high credit score is indicative of this. Borrowers with the highest credit scores generally qualify for the best car finance rates in Australia. For example, if your credit score is over 600, you will likely secure a personal loan interest rate between 5% and 10% per annum. On the other hand, scores below 510 are likely to attract a higher rate. If your credit score is below average, you may need to apply for a bad credit car loan, which will likely come with a higher interest rate and more restrictive terms.
There are ways to improve your credit score to increase your chances of qualifying for a lower interest rate. Firstly, it is important to make timely payments on existing debts and reduce outstanding balances. Additionally, avoid opening new credit accounts, as the frequency of credit applications is considered when calculating your credit score. Consolidating multiple loans or credit cards into one can also help improve your credit score by making repayments more manageable and reducing the amount of credit available to you.
When comparing car loan options, it is essential to look beyond the advertised interest rate and consider the comparison rate, which provides a more accurate reflection of the loan's overall cost. This rate takes into account the interest rate, as well as ongoing fees and charges. By monitoring and improving your credit score, you can increase your chances of qualifying for a lower interest rate and securing a competitive car loan package.
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Loan interest rates for new vs. old cars
The average fixed-term personal loan rate, including car loans, in Australia is 9.68% per annum, according to the Reserve Bank of Australia. However, this figure should be taken with a “pinch of salt” as the rate depends on the applicant's financial situation, the car being financed, and where it is purchased. The interest rate also depends on the size of the loan and the length of the term. For example, a $35,000 car loan to be repaid at 7.43% per annum over five years would incur $7,010 in interest payments. Reducing the interest rate to 7.00% per annum would result in interest payments of $6,583.
Lenders offer the lowest car loan interest rates on brand new cars or demo models. Newer cars may qualify for slightly lower interest rates due to slower depreciation and warranty coverage, which reduces lender risk. Loans for used cars tend to have higher interest rates, and some lenders have tiered interest rates for used car loans that increase with the age of the car.
A borrower with a good credit score buying a brand new car, particularly an electric vehicle (EV), should generally aim for a car loan interest rate below 8% per annum. The cheapest car loans in Australia are usually available for EVs and plug-in hybrid electric vehicles (PHEVs). Around 40% of lenders offer discounted rates for EVs.
It is important to compare interest rates and loan terms from various lenders to find the most competitive rate. Canstar and Money.com.au offer comparison tools to help borrowers find the lowest car loan interest rates. Borrowers should also be aware of their credit score, as lenders base their rates on an individual's credit score, offering the lowest rates to those with the highest scores.
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Fixed vs. variable interest rates
When taking out a car loan in Australia, you will usually be given the choice between a fixed or variable interest rate. Each option has its own advantages and disadvantages, so it's important to understand the differences between them before deciding which type of loan is best for you.
A fixed-rate car loan means that the interest rate will remain the same throughout the life of the loan. This can be helpful for budgeting and planning, as you know that the repayment amounts won't change. Additionally, you know exactly how much you'll end up paying towards the loan in total. Fixed-rate loans can be secured or unsecured, which will also influence the interest you pay back over the life of the loan. A secured loan gives the lender the right to take back the car if repayments can't be made, and as this poses less risk to the lender, the interest rate is likely to be lower than that of an unsecured loan. However, a major disadvantage of fixed-rate loans is their lack of flexibility. They usually don't allow for redraw facilities and may come with high fees for paying off the loan early or making lump-sum repayments.
On the other hand, a variable-rate car loan means that your interest rate will fluctuate in line with market activity. So, if market interest rates fall, the interest rate on your loan should also decrease, but if market rates rise, so will the rate on your loan. Variable-rate loans are generally more flexible than fixed-rate loans, often making it easier to make extra repayments, adjust your repayment frequency, pay off the loan early, or refinance. They also often come with a redraw facility, which allows you to make additional repayments and withdraw them if needed. However, the main drawback of a variable-rate loan is the uncertainty it brings. This can make budgeting for your interest payments more difficult, as you have to take into account potential rate rises, which could cause you financial stress if you can't keep up with rising rates.
In Australia, most car loan interest rates are fixed. Over 69% of the car loans on Money.com.au's lender database offer a fixed interest rate. However, for lenders that do offer the choice between a fixed and variable rate, more of the current fixed rates are lower than the variable rates, which could indicate that lenders expect interest rates in the economy to fall.
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Frequently asked questions
The average fixed-term personal loan rate, including car loans, in Australia is 9.68% per annum. However, the rate you receive will depend on your credit score and other factors such as income, debt, and employment status.
A higher credit score generally leads to a lower interest rate, as lenders view borrowers with higher scores as less risky. Conversely, a lower credit score may result in a higher interest rate or loan rejection.
Aside from your credit score, lenders consider factors such as income, employment status, debt, and loan amount when determining your interest rate. A higher income, stable employment, low debt, and smaller loan amount can contribute to a lower interest rate.
To obtain a more favourable car loan interest rate in Australia, focus on improving your credit score by making timely debt payments and avoiding excessive credit applications. Additionally, consider the size and term of your loan, as shorter loan terms and lower loan amounts can result in lower interest rates. Shopping around and comparing rates from multiple lenders can also help you secure a competitive rate.
