Most financiers that provide car loans only offer fixed rates, but there are a few that will only offer variable rate car loans and some that will give you the option of fixed or variable.
A variable rate car loan gives you no certainty in regards to what your repayments are going to be throughout your loan term. Although they may have better early payout conditions, this could be due to the fact that they can change your car loan interest rate at any time throughout the loan term, ensuring that they don’t lose out when interest rates or their own economic conditions change.
Gone are the days when lenders would adjust their rates in line with the Reserve Bank of Australia (“RBA”) interest rate movements. Lenders are now applying their variable interest rates at their own discretion, often not passing on rate cuts, or even increasing rates independently of the RBA. This doesn't give you much certainty throughout the term of the loan what your repayment or interest rate is going to be and there is often no limit to how many times these can change.
When you take out a fixed interest rate on your car loan, your interest rate is fixed for the full term of your loan and your repayments stay the same from start to finish, which gives you a certain amount for your own personal budgeting purposes. There may be early payout penalties with a fixed rate car loan, but they are usually not substantial and may be a small price to pay to know that your interest rate and repayment is locked in for the full term of your loan.
Most lenders will allow additional repayments and the ability to pay your loan out early on both variable and fixed rate loans and with most lenders by doing so will reduce the total amount of interest payable over the term of the loan as interest is calculated on the daily balance. With a fixed rate loan, if you are ahead on your repayments, your repayment will in most cases still stay the same as the original contractual agreement, you will actually be reducing the term of your loan and in effect saving interest by not keeping the loan for the full term.