Car loans 101: How interest rates work
Along with property, cars are some of the largest single purchases that any of us ever make. Even though lots of Australians borrow money to buy a car, the lending process often isn’t taken as seriously as a home loan, which can lead to confusion further down the line. One area that can seem particularly complex is interest.
Fortunately, this doesn’t have to be a tricky topic, and in this article, we’ll take a look at interest and how it works for car loans in Australia.
While there are different types of loans for different situations, interest is one element that all of them have in common. Put simply, when you borrow money from a lender to pay for all or part of a purchase, you pay that back along with interest. Interest is paid on the amount that you borrow, not on the total purchase price, and there are two types of ‘rates’ that will affect how you pay.
- A fixed rate is locked in at the time of purchase and remains the same for the duration of the term (the period over which you pay the money and interest back). This is the most common type of car loan and offers security that even if interest rates fluctuate, you’ll still be paying the amount of interest that you signed up for.
- A variable rate is, as the name suggests, variable. So if interest rates go up or down, the rate that you’ll pay will change as well. While many car loans use a fixed rate, a variable rate may mean that you’ll be able to enjoy more flexibility when it comes to when and how you pay.
One benefit of a variable rate car loan (and some fixed loans) is that you can choose to make extra repayments. This might seem like one of those extra features that are simply nice to have, but in reality, it could save you hundreds or even thousands of dollars. This is because extra payments reduce the life of your loan, and therefore the amount of interest that you’ll pay. If you decide later on that you’d prefer to use any money from extra payments elsewhere, a ‘redraw facility’ allows you to withdraw them.
Which car loan is best for me?
So, now that we’ve covered the basics of interest rates for car loans, the question remaining is which option is best for you? Depending on the type of loan that you select, the interest rate can vary significantly, sometimes by as much as 7 or 8 percent.
Awarded Money Magazine’s Best of the Best award for 2017, our Low Rate Car Loan Special Offer comes with an annual, fixed interest rate of 5.69 percent, as well as all sorts of different benefits including the ability to make additional payments and withdraw them via a redraw facility.
However, it’s worth keeping in mind that interest rates are not the only aspect of a loan to consider, so if you value additional payment flexibility or no additional fees, then there are other types of loan that suit those requirements. Simply get in touch with Beyond Bank today to discuss the options.
* Interest rate is current as of 26/02/2018.
Interest rates are subject to change without notice. Terms, conditions, fees, charges, and normal lending criteria apply. Full details are available at the time of application or by contacting us.
This information has been prepared without taking into account of your objectives, financial situation or needs. Before acting on this information, you should consider its appropriateness, having regard to your objectives, financial situation and needs.
All loans are provided by Beyond Bank Australia, a trading name of Community CPS Australia Ltd ABN 15 087 651 143 AFSL/ Australian Credit Licence 237 856.