How to Use Comparison Rates to Get the Best Car Loan Rates

A comparison rate makes it easier to compare how much two different loans are going to cost, but it’s not the only thing you should consider when you are researching the best car loan rates.

In this post, we’ll run through how you can use comparison rates to compare your next car loan, and what else you need to keep in mind to get yourself a great deal.

What is a Comparison Rate?

A comparison rate enables you to compare the true cost of loans from different lenders by reducing to a single percentage point the interest rate PLUS most of the fees and charges that relate to a loan.

It is calculated using a set formula, and includes:

  • Normal interest rate
  • Loan approval and any other upfront fees
  • Ongoing fees

It doesn’t include the fees that might apply for something that depends on a specific event, such as a fee for a statement, early repayment or missed payments.

Advertised car loan comparison rate are usually calculated assuming the loan amount is for $30, 000 over a term of 5 years.

Remember that if your loan amount and loan term are different to this, your actual loan will have a different cost - but you can use the comparison rate to give you a rough idea.

When you see an advertisement for a great car loan rate, you might need to look carefully to find the comparison rate - it’s often hidden in small print below a large advertised low interest rate.

Why Use Car Loan Comparison Rates not just the Car Loan Interest Rate?

Comparison rates were introduced through national legislation in 2003 to prevent lenders from advertising car loans with super-low or 0% interest, to lure buyers into loans that were actually very expensive due to the additional fees and charges that applied.

It’s the easiest way for you to compare to loans and see which one will give you the better deal, including any fees and charges on the loan.

I’ve Found the Best Car Loan Rate, what else should I consider?

Once you have figured out which loan gives you the best rates, you’ll need to factor in the costs of buying a car that aren’t included.

These are:

  • Government and statutory fees (stamp duty) , which are standard regardless of lender or loan type
  • Insurance products like comprehensive car insurance
  • Fees for ordering statements, early repayment, or missed payments that only apply when a specific event occurs.

The rate and costs aren’t the only thing you should consider when you choose your next car loan. Other things to keep in mind are the features and structure of the loan you choose - does it meet your financial needs?

What Types of Car Loans Have the Best Rates?

To get the best car loan, it’s essential thing is that you need to understand what a car loan is, and how it’s going to work.

To choose the best car loan rates, you’ll need to know what types of car loan there are, and understand some of the terminology that the lenders use so that you’ll understand exactly what obligations your car loan has.

Your car loan options will depend on the purpose that you’re going to use your car for:

  • Personal use
    • Personal car finance is the most common type of car loan, and it’s perfect for you if you don’t use your car for business, and your employer doesn’t have a novated leasing program in place.
    • It’s a structured loan repayment contract with a fixed term, tailored to suit your needs.
  • Business
    • If you or your company make annual motor vehicle tax claims, a chattel mortgage will allow you to claim tax deductions and GST credits if your business is registered for GST, and your use of the vehicle is more than 50% for business. This can really reduce your running costs!
    • You can get a chattel mortgage for most types of cars and trucks.
  • Self-employed
    • If you work for yourself, you might not have payslips proving your regular income. Not to worry, we have other ways that we can verify your income and get you a low doc car loan.
  • PAYG Employee
    • A novated lease is one of the most cost-effective car ownership options Australians can choose between.
    • Your car loan payments come out of your pre-tax income, reducing your PAYG income tax.
    • To offset this deduction, you’ll pay Fringe Benefits Tax based on the purchase price of the car and your total annual kilometers. Most of the time this will work out to be less than you’d have paid in PAYG tax.

Now you have a good idea of what some of your car loan options are, and how you can easily and accurately compare car loans from different lenders.

You can see straight away that in an enormous country like Australia, you’ll need a car if you’re going to get where you need to go to work, visit friends and family, or even just to do your grocery shopping.

In 2013 according to the ABS, 71% of people aged 18 years or over travel to work or full time study primarily by passenger vehicle, and 88% used a car to get places other than work. By now that figure will only have grown larger!

This is why at Positive Lending Solutions we are committed to helping you find the right car loan, with all the information you need to make a decision that’ll keep you on the road.

Now that you know what types of loans you can choose, and how to compare the best car loan rates, if you’re ready, you can call 1300 722 210 to talk to a car finance broker about your real options, or find out more about how to compare car loans.

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