Looking for a car loan with a bit of flexibility? You might’ve heard the term “variable rate car loan” in your travels when surveying the market, but it’s important to understand what they are and how they work before you sign on the dotted line. That’s where Savvy can help you out.
We’re partnered with a wide and diverse range of lenders from all around Australia to help you find and compare offers more effectively. Whether you’re looking for car finance that allows you to take advantage of falling rates or simply want the freedom to pay it off early, get a quote with us today to get the ball rolling on your next car purchase!
What are variable rate car loans and how do they work?
A variable rate car loan comes with an interest rate that can fluctuate throughout the loan term. This means your monthly repayments may change depending on rate adjustments made by the lender.
For example, imagine you borrow $30,000 for a car loan with an initial variable interest rate of 7.50% p.a. The lender calculates your monthly repayment amount based on this initial rate. If the base rate increases in the future, your variable interest rate and monthly repayments could potentially go up. On the other hand, if the base rate decreases, your interest rate and repayments could go down.
The lender will typically notify you in writing of any adjustments to the interest rate and the corresponding changes to your monthly repayments.
How do I compare variable rate car loans?
There’s a wide range of areas to consider when comparing your car loan options. The main factors to consider include:
- Interest rate: this is the most crucial factor. Compare the initial variable interest rate offered by different lenders. Remember, this rate can change.
- Comparison rate: look at the comparison rate, which includes the interest rate and the key additional loan fees, giving you a more accurate idea of the true cost of the loan.
- Fees: compare establishment fees, monthly account keeping fees and any potential early repayment penalties.
- Loan term: consider the loan terms available with different lenders. While some will offer loans as short as one year and as long as seven, this may not always be the case, so consider the minimum and maximum car loan terms.
- Minimum and maximum loan amount: ensure the lender offers a loan amount sufficient to finance your chosen car. Some may require minimum loan amounts beyond what you’re looking to borrow, such as $10,000, while others enforce borrowing caps, such as $100,000, which may not suit luxury car buyers.
- Repayment flexibility: check if the loan allows for free additional repayments and whether any fees are charged in the event you pay off your loan ahead of schedule.
- Other features: you may also look for further car loan features, such as balloon or residual payments and
When you apply for a car loan with Savvy, you can compare all these factors and more with the help of a friendly, trusted member of our consultant team.
How much will my variable rate loan cost?
The cost of your variable rate car loan will depend on a set of variables specific to you, your lender and the finance deal you choose. Some of these are:
- Interest rate: obviously, the higher the rate, the more your loan will ultimately cost.
- The size of your loan: larger loans will lead to greater overall costs, as interest is calculated based on the outstanding balance.
- The length of your loan term: because interest is calculated on the outstanding balance, the longer you take to repay it, the more expensive it’ll be overall.
- Whether additional payments are made: with extra payments, you can pay off your loan sooner and save on interest in the process.
- Whether a balloon payment is added: a balloon or residual payment is like a deposit at the end of your loan. However, although it reduces your regular repayments, you’ll end up paying more interest.
The following table demonstrates how different interest rates and loan sizes can have an impact on the cost of your car loan repayments, with all calculations based on a five-year term with monthly repayments:
| 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
|
Source: Fixed Rate Car Loans – Savvy
Should I choose a fixed or variable interest rate for my car loan?
In contrast to a variable rate car loan, fixed rates are locked in from the start of your repayment term and remain the same throughout your repayment period. This means that you won’t benefit from rate decreases but will be protected from increases.
Fixed rates are better for budgeting, as you’ll know exactly how much you’ll be paying each month and year, but are more likely to come with break costs if you decide to pay it off early.
Whether a fixed or variable rate car loan is best for you will come down to your preferences as a borrower. It’s important to understand how rate changes may impact the amount you pay overall, so the following table breaks down how this might happen for a $30,000, five-year loan:
| Interest type | Starting interest rate | Interest paid after 2 yrs | Interest rate after 2 yrs | Total interest paid |
|---|---|---|---|---|
|
Variable
|
7.50% p.a.
|
$3,753
|
6.25% p.a.
|
$5,671
|
|
Fixed
|
7.50% p.a.
|
$3,753
|
7.50% p.a.
|
$6,068
|
|
Variable
|
7.50% p.a.
|
$3,753
|
8.75% p.a.
|
$6,470
|
As you can see from the rate above, the interest dropping by 1.25% p.a. for the final three years of the loan would save you just under $400, while the rate increasing by that amount would result in you spending just over $400 more.
Why apply for a car loan with Savvy?
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Car loan repayment calculator
Crunch the numbers to see how much you could be paying
Your estimated repayments
$98.62
| Total interest paid: | Total amount to pay: |
| $1233.43 | $5,143.99 |
How to apply for your car loan with Savvy
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Fill out our simple online application form
Tell us about yourself and the car and loan you’re after. This will include information about your income, employment and credit score and helps us find the best available loan for you.
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Supply any required documents
After you complete your application, we may request further documentation to verify details such as your employment and income. These can be submitted online via our portal.
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Discuss your options with us
Once we have all the information we need, we’ll compare the offers available to you from our lending panel. Your consultant will reach out to you and talk you through your car finance options to get the all-clear.
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Find your ideal car
If you haven’t already decided on (or found) your ideal car, our in-house car broker team, Vehicles Direct, can search our national network of dealerships to find the best available model for you.
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Have your application prepared and approved
Once we have all the info we need, your consultant will get to work preparing your application for submission. You can receive formal approval as soon as one business day after it’s submitted.
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Sign on the dotted line
We’ll send through your final loan documents and other forms to sign electronically. Once settlement is complete (which we’ll also handle for you), you’ll be the proud owner of your new or used car!
Car loan eligibility and documentation
Eligibility
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Age
You must be at least 18 years of age
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Residency
You must be an Australian citizen or permanent resident (or, in some cases, an eligible visa holder)
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Income
You must be earning a stable income which is enough to comfortably support your repayments (this can start from as little as $20,000 to $26,000 per year)
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Employment
You must be employed and earning a consistent income from your job
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Credit score
You must meet your lender’s requirements related to your credit score
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Car
Your car must meet your lender’s requirements related to type, age and condition
Documents
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Driver's licence
Front and back (or another form of government-issued ID)
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Payslips
Your last two consecutive payslips (or your last tax return if you're self-employed)
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Savvy forms
Your Savvy application, consent form and credit guide (supplied by your consultant)
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Car details
Information about your car, such as its age, is handy to have
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Bank statements
90 days of bank statements may be requested, but not always
