Written by If you’re looking for a car loan, you would’ve come across fixed rate car loans while navigating the market. When applying for financing, a fixed rate helps you keep your interest at the same level throughout your loan term.
A fixed rate car loan comes with a predetermined interest rate which is locked in for the duration of your loan term. This means your monthly repayments will remain the same throughout the loan, regardless of fluctuations in the broader economic market.
Most secured car loans will come with fixed interest rates, but some lenders may give you the option of a variable rate instead. If you decide on an unsecured car loan, though, both fixed and variable options will generally be readily available.
What are the differences between fixed rates and variable rates on car loans?
As the name suggests, variable rate car loans come with non-fixed interest, meaning your rate can change from month to month in line with market movements. Choosing between a fixed rate and variable rate car loan depends on your risk tolerance and how you handle financial uncertainty. Here's a breakdown of the key differences:
Advantages of fixed rate car loans
- Repayment certainty: one of the key benefits of fixed interest is the certainty it provides on a monthly basis. This can make it easier to budget around your loan instalments, as you’ll know exactly how much they’ll cost each time you make a payment.
- Protection against rate rises: another factor to consider is that fixing your rate can protect you against any increases in interest rates during your term. If you’re borrowing in an environment where rates are climbing, fixing your rate could help you save.
Advantages of variable rate car loans
- Greater flexibility: fixed rate car loans typically come with fees associated with paying out the agreement early. However, you may be able to get a variable rate loan without these hefty charges.
- Savings if rates fall: although you remain unprotected against rate increases, the same is true of decreases. This means you could save money if rates start to decline during your car loan term.
Should I choose a fixed or variable interest rate?
Ultimately, whether you decide to go for a fixed or variable rate will come down to your preferences as a borrower. Do you value the certainty that comes with a fixed rate or the flexibility that a variable rate brings?
If you’re unsure of which option to choose, you can compare a range of offers with Savvy. One of our experienced consultants will work with you to find the best deal on offer among our vast panel of trusted Australian lenders.
How much will my fixed rate car loan cost?
The cost of your fixed rate car loan is dependent on a range of factors, including the following:
- The size of your loan
- Your interest rate
- The fees charged
- Your loan term
- Whether you make additional repayments
- Whether you pay weekly, fortnightly or monthly
- Whether you attach a balloon or residual payment to your loan
It’s important to understand how interest rates can impact the cost of your loan. The following table breaks down how monthly repayments change based on different rates and loan sizes:
| Loan size | 7.00% p.a. | 8.00% p.a. | 9.00% p.a. | 10.00% p.a. |
|---|---|---|---|---|
|
$30,000 |
$594 |
$608 |
$623 |
$637 |
|
$40,000 |
$792 |
$811 |
$830 |
$850 |
|
$50,000 |
$990 |
$1,014 |
$1,038 |
$1,062 |
|
$60,000 |
$1,188 |
$1,217 |
$1,246 |
$1,275 |
|
$70,000 |
$1,386 |
$1,419 |
$1,453 |
$1,487 |
Repayments are calculated based on a five-year term and monthly instalments.
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How should I compare fixed rate car loans?
Before you apply for any car loan, you should always thoroughly compare your options. The key variables to consider are:
- Interest rate: of course, it’s crucial to look for the lowest rate available to you, as doing so can help you save hundreds, if not more, over the life of your loan.
- Fees: car loans can come with a variety of other costs, including establishment, ongoing and early repayment fees. Consider these and how much they may end up costing you overall. These can also be seen in the loan’s comparison rate.
- Borrowing limits: although most lenders can finance up to 100% of your vehicle’s purchase price, it may be worth looking at any minimum and maximum limits that apply.
- Available loan terms: not all lenders offer the full range of one to seven-year loans, so if you’re aiming for a particularly long or short term, it’s worth comparing your options.
- Repayment flexibility: if you value flexibility in your loan, you may look for one that offers free early repayments.
- Car eligibility: different lenders will have different criteria when it comes to the cars they can finance. It’s important to check them to ensure the car you want meets their age and condition requirements.
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Frequently asked questions about fixed rate car loans
How can I reduce my fixed interest rate on a car loan?
There are a variety of factors to reduce your car loan interest rate. Firstly, improving your credit score will go a long way towards reducing your rate, as a high rating is an indication of your trustworthiness when borrowing money in the past. This may be through paying off existing finance debts, lowering credit limits and continuing to pay your bills on time.
Buying brand-new will afford you access to the lowest fixed rates, while avoiding too many job changes and maintaining a consistent income will also help. Additionally, while not necessarily affecting your rate, paying a deposit towards your car loan can help you reduce the overall interest you pay on your loan.
Are fixed interest rates lower than variable rates?
Whether a fixed or variable rate is lower will depend on your lender and the state of the wider market when you take out your loan. For example, if interest is expected to rise, fixed rates may be higher than variable rates. However, in circumstances where rate decreases are forecast, lenders may incentivise borrowers to fix their interest by making them lower than variable rates.
Am I able to refinance my loan down the track or am I locked in?
Yes – you can refinance your fixed rate car loan. This essentially means you’re taking out a loan to cover the cost of your existing loan and pay off a new debt instead. The fact that car loan rates are fixed doesn’t prevent you from refinancing to access a lower interest rate if you find one further into your loan repayments. However, you may need to pay early exit fees to refinance your car loan, so consider the costs associated with doing so.
Can my car loan’s fixed period finish before the end of the loan term?
No – your interest rate will be fixed consistently across the loan, regardless of term length.
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