10 Tips to Get the Best Car Loan Rate in Australia

The interest rate on your car loan directly impacts how much you pay over the life of the loan. Even a small difference in rates can translate to thousands of dollars saved or spent. These ten strategies will help you secure the best possible rate when financing your next vehicle in Australia.

1. Check and Improve Your Credit Score First

Your credit score is one of the biggest factors lenders consider when setting your interest rate. Before applying for any loans, obtain your credit report from one of Australia's credit bureaus and review it for errors. Dispute any inaccuracies you find.

If your score needs improvement, consider delaying your car purchase by a few months while you work on it. Pay all bills on time, reduce credit card balances, and avoid applying for new credit. These actions can improve your score and qualify you for better rates.

2. Save for a Larger Deposit

A substantial deposit reduces the amount you need to borrow and signals to lenders that you are a responsible saver. Many lenders offer better rates to borrowers who put down 20 percent or more of the purchase price. The lower loan-to-value ratio represents less risk for the lender.

Beyond getting a better rate, a larger deposit means smaller repayments and less interest paid overall. If possible, delay your purchase until you can save a meaningful deposit amount.

3. Shop Around and Compare Multiple Lenders

Never accept the first rate you are offered. Different lenders have different risk appetites, funding costs, and target markets. A rate that one lender considers competitive might be beaten by another. Compare offers from major banks, credit unions, online lenders, and specialist car finance providers.

When comparing, look at the comparison rate rather than just the advertised rate. The comparison rate includes most fees and gives a more accurate picture of the true loan cost.

4. Get Pre-Approved Before Shopping

Obtaining pre-approval from one or more lenders before visiting dealerships gives you a confirmed rate to use as a benchmark. You know exactly what rate you qualify for, making it easier to evaluate any dealer finance offers against a known standard.

Pre-approval also strengthens your negotiating position. You can focus on negotiating the car price without the confusion of finance discussions, and you have the option to walk away from unfavorable dealer finance terms.

5. Choose a Secured Loan

Secured car loans, where the vehicle serves as collateral, typically offer lower interest rates than unsecured personal loans. The lender's ability to repossess the car if you default reduces their risk, and they pass some of that reduced risk on through lower rates.

While this means the lender has a claim on your vehicle until the loan is paid, for most borrowers the interest savings outweigh this consideration.

6. Consider a Shorter Loan Term

Shorter loan terms often come with lower interest rates. Lenders see less risk in shorter loans because there is less time for things to go wrong. A three-year loan might have a noticeably lower rate than a seven-year loan.

The trade-off is higher monthly repayments, but you will pay significantly less interest overall. Use our car finance calculator to compare total interest paid across different loan terms.

7. Choose a New or Near-New Vehicle

Loans for new cars typically attract lower rates than those for older used vehicles. Newer cars hold their value better and represent less risk as collateral. If you are flexible on whether to buy new or used, consider the impact on your interest rate as part of the decision.

Demo vehicles and nearly-new cars that are one to two years old often qualify for rates similar to new car loans while offering purchase price savings.

8. Negotiate the Rate

Interest rates are often negotiable, especially if you have strong credentials as a borrower. If you have excellent credit, stable employment, and a good deposit, use these as leverage to ask for a better rate. Mention competitive offers you have received from other lenders.

Even a reduction of 0.25 to 0.5 percent can save you hundreds of dollars over the loan term. The worst that can happen is the lender says no, leaving you no worse off than before.

9. Avoid Unnecessary Add-Ons

Dealer finance often includes add-on products like extended warranties, paint protection, and gap insurance. While some of these products may have value, they increase your loan amount and therefore your interest costs. Evaluate each add-on critically.

If you do want these products, consider purchasing them separately rather than rolling them into your loan. This way, you avoid paying interest on them over the full loan term.

10. Time Your Application Strategically

Market conditions and lender promotions can affect available rates. End of financial year, end of calendar year, and model run-out periods often see competitive finance deals as manufacturers and dealers push to meet targets.

Watch for promotional rates from manufacturers, which can be significantly below market rates. Just ensure the promotional rate is not offset by an inflated vehicle price or restrictions that do not suit your needs.

Putting It All Together

The best car loan rate comes from a combination of factors: your creditworthiness, the loan structure you choose, and the effort you put into shopping around. Taking time to prepare before applying and comparing multiple options can save you thousands over the life of your loan.

Start by calculating what you can afford using our car finance calculator, then use these strategies to secure the best possible rate for your situation.