Search and compare fixed rate car loan options

Looking to get back on the road, but not sure a fixed rate car loan is the right choice? Comparing fixed rate car loans can be tricky, as lenders have different terms, fees and charges to consider.

If you're in the market for a new car and you're looking for car finance options, get all the facts before you act and use RateCity to compare loan features and fees.

A car loan is a type of personal loan that is taken out by a borrower specifically to buy a new car, used car or other eligible vehicle. Fixed rate car loans specifically lock the borrower into the same interest rate and repayments over the life of the loan term.

Fixed rate loans may help you avoid any financial stress should interest rates rise. As you’re locked into a set rate, the lender can’t make any unexpected changes to your repayments. You may also benefit from simplified budgeting, as a fixed rate car loan means you're making the same repayments for the loan term. 

Whether you need a used car loan or a new car loan, the best car loan for you will not be the best for someone else, as it depends on your financial situation. If you’re looking for security, then you may prefer the certainty of a fixed rate car loan. To find the lender with the best car finance, whether variable or fixed, you need to compare the loan type, account fees and interest rates.

Benefits and risks of a fixed rate car loan

The main advantage of a fixed rate car loan is the certainty it offers in terms of repayments, and the protection offered against future rate rises. Borrowers know exactly what their repayments will be, and that amount is locked in for the life of the loan. Set repayments provide a level of assurance that variable rate loans just can't.

While the benefit of a fixed rate car loan lies in its pre-agreed repayment structure, this is also a disadvantage. If your lender cuts interest rates, this will not be passed on to you if you have a fixed rate loan, only to borrowers on variable loans. In addition, interest rates on fixed loans may also be higher than rates on variable loans given the certainty they offer. Much like insurance, you may need to pay a little extra to protect against rising interest rates. 

Fixed rate loans may also have more restrictive conditions than variable loans. For example, repaying your loan early may attract financial penalties, to ensure the lender recoups the loss of interest that an early exit brings.

Benefits and risks of a variable rate car loan 

As the interest rate is variable, the lender may adjust it at any time. The main advantage of this is that your repayments may fall if your lender cuts their interest rates, reducing your interest costs. Variable car loans may also offer more flexible features, such as the ability to make extra repayments or pay out the loan early, features that are typically not available on fixed loans.  

The main disadvantage of a variable rate loan is that the lender may raise the interest rate on your loan at any time. A sudden, unexpected increase in your repayments could exceed your budget, especially if you’re on a tight one.

Interest rates are charged by lenders in return for the risk they take on when they lend money to individuals. For a fixed car loan, the interest rate you are charged will not fluctuate over your fixed period.

The example below shows how interest rates can be calculated on a car loan with a 7 per cent interest rate and a monthly repayment of $400. 

The interest cost on car loans is usually calculated daily and accrued monthly.  As this is a principal and interest rate calculation, it does not include other fees or charges such as ongoing management fees, early exit fees, or late payment fees. These may apply to your car loan, so be sure to check this before signing anything.

Note: Different banks will calculate interest rates over different times,so be sure to check with your preferred lender how they calculate them.

Fixed rate car loans come in two main forms, secured and unsecured.

Secured fixed rate car loans

Most car loans on the Australian market are secured by the vehicle purchased with the loan. This means that the car you buy is used as security against the loan, and your lender can repossess your vehicle if you do not make your repayments. Lenders usually see secured car loans as less risky compared to unsecured loans, as they can sell the car to recoup their losses if you default on your repayments. 

Some lenders will only offer secured loans for certain makes and models, or cars under a certain age, to further reduce their financial risk. This means some used vehicles may not qualify under a personal loan lender's eligibility criteria.

Unsecured fixed rate car loans

If the car you’re buying doesn’t qualify for a secured loan, or if you prefer not to risk losing your vehicle, some lenders offer unsecured car loans. Unsecured loans do not require collateral against the loan, such as the car. However, as they represent greater risk to lenders, unsecured loans typically have higher interest rates than those on secured loans. 

Unsecured fixed rate car loans usually have stricter eligibility criteria too, such as more stringent affordability tests, and may only be offered to high income earners with steady income streams.

A fixed rate car loan with a low advertised rate may seem to be the best option. However, it’s important to look further than the interest rates to calculate the total cost of your fixed rate loan.

A fixed rate car loan with a low advertised rate may seem to be the best option. However, it’s important to look further than the interest rates to calculate the total cost of your fixed rate loan.

• The lowest interest rate is not always the cheapest

Even if a fixed rate car loan has a lower interest rate than its competitors, you’ll most likely still pay fees and charges in addition to interest costs. This could potentially make a low rate car loan more expensive than a higher-interest rate car loan with lower fees and charges. 

Let’s look at an example. Claire wanted to borrow $11,500. Lender A offers an 8% interest rate, with only a monthly fee of $5 and Lender B offers a 6% interest rate, but has multiple fees and charges throughout the loan term. Lender A actually works out $99 cheaper than Lender B, despite the 2% lower advertised interest rate.

Source: RateCity Car Loan Calculator

• Check the comparison rate

From July 2003, the Australian government made it mandatory for lenders to display a comparison rate alongside an advertised interest rate. This comparison rate includes most fees and charges on a loan, and bundles this with the advertised rate to give an overall interest rate, called the comparison rate. Comparing different comparison rates is a helpful guide to borrowers as it gives a more accurate understanding of what the total cost of the loan might be.

However, it’s important to note that even a car loan with a low comparison rate may have additional non-standard fees that are not included in this rate. Using the comparison rate as a guideline to narrow down your choices is wise, but make sure to ask about all the fees and charges on a loan before signing on the dotted line.

• Fees and flexibility

Fixed rate car loans may offer a stable, simple repayment system. However, extra fees such as break costs may apply if you try to repay your car loan earlier than agreed. If you find yourself with extra funds available, and want to clear your debt with your lender, make sure you look at the fees associated with additional car loan repayments on a fixed loan. Repaying early may attract financial penalties, to ensure the lender recoups the loss of interest that an early exit brings.

Variable rate car loans tend to have more flexible arrangements than fixed car loans. If you want to make extra repayments, you may often be able to without charge. Loans that include the option to make additional repayments may also offer a redraw facility, so you may access any additional money you have paid on the loan if need be. 

Types of ongoing fees and charges that may be applicable include:

• Application fees
• Establishment fees
• Extra repayment fees
• Redraw fees
• Early payout/Early repayment fees
• Other service fees or account keeping fees
• Car insurances, if purchased with the loan provider

• High LVR on your car loan

A Loan to Value Ratio (LVR) is the percentage of money you borrow for a car loan, in comparison to the vehicle’s value. Some lenders have 100% loans available, where you borrow the full value of the car and don’t need a deposit. This may seem appealing, but often, a higher interest rate may be charged by lenders on such a loan compared to one with a lower LVR to account for increased financial risk. 

Before you sign up to a fixed interest rate car loan, check the lender’s terms and conditions, their Product Disclosure Statement (PDS), lending criteria and loan fact sheets. Only with all the financial information can you make an informed decision on which loan will work best for you.

The length of time you have to pay off your car loan, known as the loan term, generally ranges from 1 - 5 years, with some providers offering loans up to 10 years. 

When you take out a fixed rate car loan the interest rate is fixed for the entire length of the loan term. This is different to a fixed rate home loan, which typically last for 25-30 years, but offer 1- to 5-year fixed periods which may then revert to a standard variable rate. 

A car loan term will generally be a much shorter loan term than a mortgage, meaning it is more feasible for a lender to fix the interest rate for the duration of the term. Put simply, if your fixed rate car loan is on a 3-year term, the interest rate will be fixed for the whole 3 years.

While you will typically have the option to choose the loan term that best fits your budget, it's important to keep in mind that the longer your loan term, the more you will likely pay in interest charges over the life of the loan. 

On the other hand, your ongoing repayments may be lower on a longer loan term, regardless of your repayment frequency. Taking out a car loan on a 5-year term, for example, means the total loan amount will be spread over 5 years and repaid in regular instalments (weekly, fortnightly or monthly repayments) until the end of this period. In contrast, taking out a 2-year loan means you have a much shorter period of time to pay back that same loan amount, making the regular repayments higher.

When it comes to choosing between a shorter or longer loan term, the best option is the one that works for your individual needs. Consider using RateCity's Car Loan Calculator to get an estimate of how much your repayments might be on different loan terms.