Graham heads Finder's insights team and specialises in a variety of financial topics, including credit cards, loans, insurance and investing. He regularly appears on TV including ABC News, Sunrise and Today, and edits Finder's Insights column.
Some loans come with lower interest rates than others, but they aren't always the cheapest. This is because of other costs that you need to account for apart from interest, including establishment and ongoing account fees. These fees can add to the cost of your loan and at times outweigh the benefits of a lower rate. You should also consider whether there are any restrictions and fees for extra repayments and early exit.
Amir is buying a car for $35,000 and applying for a car loan of $25,000 after the trade-in of his old vehicle. He's shopped around and found a cheap car loan with an interest rate of 8.5% with Bank A. The rate offered by Bank B was 9%, so Amir dismissed it for being too high.
But Amir didn't look into the other fees and charges that apply. He planned to make extra payments each month but didn't realise he'd pay an early repayment fee if he pays off his loan sooner than the 5-year loan term.
Amir also didn't check how much the establishment fees or monthly account fees were. Overall, the loan from Bank A costs an extra $1,287 – so the loan with the slightly higher rate ends up being the cheaper option.
| Description | Bank A | Bank B |
| Loan amount | $25,000 | $25,000 |
| Interest rate | 8.5% | 9% |
| Loan term | 5 years | 5 years |
| Monthly account fee | $10 | None |
| Monthly repayment | $522.91 (includes monthly fee) | $518.96 |
| Establishment fee | $600 | $100 |
| Early repayment fee | $550 | None |
| Total amount paid | $32,524.80 | $31,237.53 |
* This is a fictional, but realistic, example.
Your lender may advertise its rates, but it's always possible to negotiate. Here's what you can do:
Here are some of the information and documentation you may need to provide when applying for your cheap car loan:
The type and age of the car will influence the cost of your car loan. Here's what to look out for:
Interest rates for new cars are usually lower because they're classified as lower risk. This is because new cars are likely to retain a fair amount of their value for the loan term. Using the car as collateral also makes the loan cheaper. In some cases, lenders may consider any car under 2 years as new, depending on the number of kilometers on the odometer.
New car loans
Given that the value of the car will reduce over the loan term, used cars may be considered at higher risk from a lender's perspective. This means higher interest rates for used car loans. You can secure the loan with the car, but there may be restrictions based on the age of the car. For example, the used car should be between 2 and 5 years old at the time of application and no older than 10 years at the end of the loan term.
With cars older than 5 years, the lender is unlikely to use the vehicle as security. In this case, you may have to opt for an unsecured personal loan instead. This type of loan is more expensive as it's riskier for the lender, resulting in higher interest rates. On the other hand, the lender can't repossess the vehicle in case you default.
| Response | Gen Z | Gen Y | Gen X | Baby Boomers |
|---|---|---|---|---|
| My bank | 43.82% | 35.6% | 37.5% | 32.67% |
| Unsure | 26.97% | 26.36% | 36.51% | 46.31% |
| Cheapest rate on the market | 15.73% | 27.17% | 21.05% | 19.03% |
| A big 4 lender | 12.36% | 10.05% | 3.95% | 1.7% |
| Peer-to-peer lender | 1.12% | 0.82% | 0.99% | 0.28% |
✍ Fill out an application form online using the lender's online portal. You can also fill out the form in person at the bank branch or at the car dealership.
🖨️ Once you've applied, your application will be reviewed by a credit officer. You should receive conditional approval almost immediately if everything is in order.
🔎 During the final stage of approval, you may be contacted for more information or documentation to support your application. This can include your ID, payslips, income verification and bank statements.
✅ Once the loan has been approved, you'll have to sign the loan contract. The lender will then transfer the money to your account, which you can use to purchase your car.
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