How Do I Get the Lowest Car Loan Interest Rate?

Here’s the 7 essential things that you’ll need to make sure you can get the lowest interest rate on your next car:

1. Be in a stable job

If you are self-employed or a business owner, you might not have payslips - you’ll need other documents as evidence of steady income. If you don’t have stable work you may need to pay a higher rate as the bank is taking more of a risk that the loan won’t be repaid in full, on time.

2. Keep your credit history clean

By paying your bills on time, you’ll give lenders the confidence that you’ll also pay your car loan on time. As Australia adopts a positive credit reporting system, it becomes important that you meet your repayments as loan history, as well as serious defaults, become visible to lenders.

3. Save a good sized deposit for a down payment towards your car

This reduces the amount you need to borrow, as well as giving the lender confidence that you’re good at saving, and you’ll be rewarded with a lower interest rate as well as a shorter loan term.

4. Do your car loan research

This means not just finding the lowest interest rate, but finding out what fees the loan will have, the total cost, and making sure that you can definitely afford the loan, even if something happens and you can’t work for a while.

By knowing what to look for when you compare car loans you'll find that you can get a loan that works best for you. Click the link to learn what you need to look for.

5. Negotiate a discount

If you’ve shopped around for your car loan, you’ll know what’s out there. That means if your bank wants to keep your business, they might be willing to add some flexibility to the loan that you want.

Here’s another tip to help you get the lowest price on your new car: once you’ve found the car that you want to buy, you should negotiate the price of the car first, before you include your old car as a trade in.

The best way to do this is to say you’ll sell it privately, or you haven’t decided yet. It’s the easiest way to get the best price for your old car, and the best price on your new car, as you can see how much each is worth separately.

6. Consider a balloon payment.

A balloon payment is a bit like a deposit that you pay at the end of the loan term, rather than at the beginning. By paying a lump sum, you’ll reduce the interest that you pay. The catch is that you’ll need to remember to put away a bit extra so you’re ready for the lump sum payment.

7. Get a pre-approved loan before you go to the dealer.

There’s two key reasons why you should get a pre-approved loan before you start shopping for your next car.

  • You’ll have a set budget to work within that you know you can afford
  • You won’t have to worry about the pressure of getting finance from the dealer - because you’ve already shopped around, you can be confident that you’ve got a great loan organised and you won’t be conned into anything you’re not sure about.

Is it always best to get the lowest car loan interest rate?

Definitely not!

Let me explain:

Choosing a lower interest rate will mean that you have smaller repayments each month throughout your loan.

Let’s say you want to borrow $30, 000. You have 2 choices - you can borrow the amount over 5 years, with a higher interest rate of 7%, or you can choose a lower interest rate of 6.5%, but a longer loan term of 7 years.

Which one works out better for you?

Loan Variables

Higher Rate, Shorter Term

Lower Rate, Longer Term

Loan Amount

$30, 000

$30, 000

Loan Term

5 years

7 years

Interest Rate



Weekly repayments



Total Cost of Borrowing

$5, 536


As you can see from this table, just looking at the interest rate and the loan term, without considering any fees that apply to either loan option, you’ll pay a lot less total interest on the higher rate, 5 year loan.

In fact by paying a higher interest rate over a shorter time you’ll save $1,769.

The main advantage of a lower interest rate is that your weekly repayments will be less, making the loan easier to manage week to week.

But when you are comparing car loans, remember to compare the Total Interest, as well as considering your interest rate and weekly repayments.

What are my Low Interest Car Loan Options?

Secured Car Loans vs Home Loan Redraws

A secured car loan will have a higher interest rate than your home loan, but you’ll pay back the borrowed amount within 3-7 years.

If you decide to redraw or refinance your mortgage to purchase a car, you should plan to make extra repayments so that you can take advantage of the lower interest rate that you are able to access.

You can see in the example above how a lower interest rate, if taken over a longer loan term, can mean the total cost of the loan is significantly higher.

Car Dealer Finance and Car Manufacturers Deals - what are the traps?

Getting your car finance right at the dealership is the easy way to arrange things as you get everything done in one place. It’s easy to see why more than a third of people who buy from car dealers use dealer finance.

There’s 2 key downsides to waiting until you get to the dealer to get your finance:

Making a rushed decision when you’re tired

  • Shopping for a car can be exhausting! By the time you’ve found the right one, and made decisions about the colour, the model, automatic or manual, 2 doors or 4 doors … the list is really endless… you might not have left enough energy to negotiate a great car loan
  • Dealers WILL use this decision fatigue to sell you extra insurance and car loan features that you don’t really need.

Avoid paying for things you don’t need

  • With pre-approved finance that you arrange after doing online research, you take the time to check the fees and commissions on the loan, as well as your monthly payment, and the insurance that you actually need.
  • Your pre-approved loan won’t include a dealer fee - and if you’re game, you can negotiate with the dealer to get a better deal than the one you already have - but be careful to read all of the terms and conditions so you don’t sign up to anything you don’t want.

Car manufacturer finance isn't usually as good as it looks!

  • If you’re offered 0% finance, or an unexpectedly low interest rate, you want to read the contract carefully to find the catch!
  • You may find you’ll be up for a large balloon payment - these can be up to 70% of the purchase price! You’ll need another loan if you want to keep the car.

You can see now how important it is to do some research about your car loan interest rates and finance options before you look for your next car.

If you want an expert to help you filter the car loans available, our brokers can research for you and come back to you with the best options.

You can ask them as many questions as you need, because we are here to make sure that you are 100% in control and comfortable with your car loan!

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