The best interest rates on car loans may change on a case by case basis, as every lender has different ways of assessing what car loan interest rate applies to each applicant.
The best car loan interest rates are usually similar, or just slightly higher than what the average 5 year fixed rate home loan rates are, but this margin can change dramatically over time, so is not a perfect indication.
Some of the things that may change what interest rates are available are below:
Age Of The Car
A brand new car has the most lender options, which would usually give the greatest chance of obtaining the best interest rates on car loans.
Some lenders will not allow vehicles to be over 5 years old, where other lenders will allow older cars up to around 15 years of age or older, however the interest rate may be a lot higher for those older vehicles than the newer vehicles, as they are deemed a higher risk security for the loan.
Secured Or Unsecured?
If the vehicle you are purchasing is used as security, this will usually get you a discounted car loan interest rate, as the financier may have the legal right in the event of a default on your loan contract, to repossess the vehicle to recover any outstanding loan balance.
When the car loan is unsecured, the lender can only take legal action to recover their costs, and have no legal right to any of your assets including your car, so this is a higher risk loan type, which is why these interest rates would be higher.
Depending on where you purchase your car from can also determine what kind of car loan interest rates you can obtain, as not every automotive financier will use the vehicle as security when purchasing through a private seller, which they may only allow unsecured car loans.
Some lenders will also restrict what kind of licenced dealers are acceptable to them, and the differences are:
- Franchised Dealerships (e.g. Holden, Toyota Dealerships, etc.)
- Non-franchised dealerships (e.g. used car dealerships with physical retail lot)
- Auctions (e.g. Pickles Auctions, Manheim Fowles, etc.)
- Other Dealers (e.g. wholesalers, car brokers, etc.)
Term Of The Loan
Some motor financiers may adjust their interest rates based on the term of the loan. For example, if you took out a longer term, like a 6 or 7 year loan term, your interest rate could be higher than if you took your loan out over 5 years. With some lenders, they may also charge a higher interest rate for shorter loan terms too.
The applicant’s profile can affect the car loan interest rates applied with some lenders, where more experienced borrowers with a good net asset position, may receive better car loan interest rates than an inexperienced first time borrower. This may be due to the lender targeting a particular type of client they are after and rewarding that type of client, by increasing interest rates on clients they are not too fussed whether they had them on their books or not.