How to compare a car loan and get the best rate

2020 Genesis G70 Sports 2.0L T Profile

Once you’ve had a look through our pages and settled on one (or two!) cars of your dreams, the next step is looking for a car loan.

In 2017, Australians took out $35.7 billion in car loans – which is a lot when you think about it!

With so many options out there, how do you know you’ve got the best loan that suits you?

We’ve teamed up with Savvy Finance to give you an overview on how you can compare a car loan and get the best rate so you can save more.

Look for comparison rates

The first way to help compare one car loan against another is to look for a comparison rate. It seems obvious, but a comparison rate is calculated differently to a normal interest rate. If you see the term “comparison rate” on an advertisement, it includes most ongoing fees such as account keeping fees as part of the percentage. This allows you to directly compare comparison rate A with comparison rate B. Unless you know how much all the fees you’ll pay, you cannot make a simple side-by-side assessment with another non-comparison rate.

Use a car loan calculator

Car loan calculators are your best way to do roughly accurate “back of the envelope” calculations for how much a car loan will cost you in regular repayments. The three crucial variables you need to make a calculation is how much finance you will need – if you have a deposit, you don’t need to include that in the loan. The next is your interest rate, and your loan term. The usual loan term is five years. Longer terms attract more interest but have lower repayments. The reverse is true for shorter terms.

You can also include a balloon payment in the calculation, which is optional. A balloon payment is a portion of the loan set aside as a lump sum for payment at the end of the term. The upside is that it reduces your monthly repayments.

Do you know your credit score?

Managing Director and car loan expert at Savvy Bill Tsouvalas says knowing your credit score helps you know where you stand before applying for car loans. “About 66% of Australians don’t know their credit scores and it could hurt you when it comes to applying for finance,” he says. “When a lender advertises a rate, that is the bottom of the barrel rate reserved for people with spotless credit.

If you don’t have great credit, it could cost you much more.” Your credit score is a number from 0-1200 (or 1000) with higher numbers being better. “People with lower credit scores may have to settle for higher interest rates or be rejected outright. If you have a high score and aren’t sure why, get a copy of your credit history and see if there are any mistakes. Clearing them up could save you a lot of money.” You can obtain your credit history for free once per year. Check MoneySmart for information on how.

How a broker can help

Getting a broker to sift through many different loans is the best method to find a great car loan rate. “Brokers have many lenders at their disposal, call their lending panel,” Tsouvalas says. “These lenders are all competing for your business. The more lenders on the panel, the more choice, and the higher likelihood you’ll drive home a better car loan deal.”

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