Everyone wants the good things in life. Acquiring gadgets and automobiles, for example, are usually exciting and pleasurable ventures. However, it is very important to keep some money aside for rainy days. If you want to buy a new vehicle, you need to research where you can get a loan that will be cost-effective for you. You should learn how to save money with a new car loan comparison. Read on to understand more.
- How can you Save Money on a Car Loan?
- Do you Get Better Rates on New Cars?
- What is a Good Interest Rate for a 72-month Car Loan?
- Which Bank has the Lowest Interest Rate for Auto?
- How can I Get the Lowest Interest Rate on a Car?
- What is a Good APR for a Car 2022?
- Can you Negotiate Interest Rates on Cars?
- Will Car Prices go Down When Interest Rates Rise?
- What is a Good Interest Rate on a Car for 84 Months?
- What is the Average Interest Rate on a Car Loan With a 800 Credit Score?
- How can I Negotiate a Lower Interest Rate on a Car Loan?
- What is the Best Way to Finance a New Car?
How can you Save Money on a Car Loan?
Save Time
You will save a lot of time by doing a car loan interest rate comparison before going out in search of a new vehicle. It will enable you to make the best decision. Most of the time, you can receive pre-approval for your loan before you shop around for your new automobile. Nowadays, this comparison can be promptly done online. There are a number of websites owned by financial institutions. Use the internet to save time.
Get The Best Deal
There are plenty of companies online that help individuals to find a lender. These companies have various lending standards. When you apply for a loan, it could fall under the less risky or high-risk area depending on the company’s standard.
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For instance, if your credit score is 651, a lender may take any credit score above 650 as an average credit while another one may rate any score below 652 as a bad one. This is why it is beneficial to get quotes from a lot of companies, compare car loan quotes and get the best possible deal.
Find A Reliable Company
The company should have many different lending institutions with various financial products that they can easily compare. Also, they should have carried out a significant amount of research into the backgrounds of these companies and the products that they have for their potential customers.
Keep away from any company that offers to compare only 2 loan products against each other. Search for a reputable one that will provide an unbiased service. You will then be able to save money with new car loan rates comparison.
Find An Informed Company
They should be abreast with the latest information in the lending market. New companies that come into the market should be known to them, and discounts being offered should also be known to them so that they can make changes to reflect it. They should always ensure they arrive there first. This will help them to obtain all the essential details.
Use Online Calculators
Another option is to use online calculators to save money with new car loan rates comparison. Simply type the loan term, and interest rate and it will give you the exact amount that you will need to pay every month. This helps you to determine whether to go ahead with the loan or not since you will know whether you can easily repay the loan.
No Pre-payment Penalty
A few companies charge loan processing fees. Go through their terms before you sign the loan agreement. Generally, it is better to look for a company that will not charge any pre-payment penalty.
Do you Get Better Rates on New Cars?
Loans for newer cars tend to have lower interest rates than those for used cars. Lenders see newer cars as less of a risk — they’re less likely to break down and lenders can identify exactly how much they’ll depreciate over time. Newer cars also have more predictable resale value than older cars, and that predictability results in a lower interest rate.
An older vehicle can carry additional risk of issues for both you and your lender. So, you can expect an older car to carry higher rates.
As an example, here are the interest rates for new and used cars as of August 10, 2022.
| Term | New | Used |
| 36 months | 4.89% | 5.21% |
| 48 months | 4.93% | 5.48% |
| 60 months | 4.94% | 6.68% |
What is a Good Interest Rate for a 72-month Car Loan?
Loan terms can impact on your interest rate. In general, the longer your term, the higher your interest rate is.
After 60 months, your loan is considered a higher risk, and there are even bigger spikes in the amount you’ll pay to borrow. The average 72-month auto loan rate is almost 0.3% higher than the typical 36-month loan’s interest rate for new cars.
That’s because there is a correlation between longer loan terms and nonpayment — lenders worry that borrowers with a long loan term ultimately won’t pay them back in full. Over the 60-month mark, interest rates jump with each year added to the loan.
Data from S&P Global for new car purchases with a $25,000 loan shows how much the average interest rate changes:
| Loan term | Average interest rate |
| 36-month new car loan | 3.86% APR |
| 48-month new car loan | 3.93% APR |
| 60-month new car loan | 4.03% APR |
| 72-month new car loan | 4.12% APR |
Data from S&P Global for used car purchases with a $25,000 loan shows how much the average interest rate changes:
| Loan term | Average interest rate |
| 36-month used car loan | 4.18% APR |
| 48-month used car loan | 4.22% APR |
| 60-month used car loan | 4.17% APR |
| 72-month used car loan | 4.07% APR |
While there’s a direct correlation between a longer repayment term period and a higher interest rate with new cars, it’s not the case with used cars. It is unclear exactly why these rates dip with longer repayment terms.
It’s best to keep your auto loan at 60 months or fewer, not only to save on interest but also to keep your loan from becoming worth more than your car, also called being underwater. As cars get older, they lose value. It’s not only a risk to you, but also to your lender, and that risk is reflected in your interest rate.
Which Bank has the Lowest Interest Rate for Auto?
The best auto loan rates can save you thousands of dollars over the course of your loan. But with so many options to choose from, finding the right provider for your needs can be a challenge.
Be sure to compare personalized quotes from lenders before making a decision.
| Lender | Starting APR | Award | Overall Score | Reputation |
|---|---|---|---|---|
| 1. myAutoloan | 3.99% | Best Low-Rate Option | 9.2 | 10 |
| 2. Consumer Credit Union | 3.49% | Most Flexible Terms | 9.1 | 10 |
| 3. AutoPay | 2.99% | Most Well-Rounded | 9.1 | 9.5 |
| 4. PenFed Credit Union | 4.24% | Most Cohesive Process | 9 | 9.7 |
| 5. iLending | 1.99% | Most Popular Marketplace | 8.9 | 9.5 |
When it comes to the best auto loan rates, each provider offers varying rates to car buyers in different situations. While one lender may offer lower interest rates for borrowers with good credit than other financial institutions, another provider may specialize in lending to people with bad credit.
1. myAutoloan: Best Low-rate Option
Starting APR: 3.99% for new vehicles, 4.24% for used vehicles
Loan amounts: $8,000 purchase minimum
Loan terms: Up to 84 months
Availability: 48 states (not available in Alaska or Hawaii)
Minimum credit score: 575
The myAutoloan online marketplace lets you comparison shop for the best auto loan interest rates from a number of lenders. You can enter personal information into the site’s online form and receive loan offers from lenders almost immediately, allowing you to compare offers side-by-side. We name it the Best Low-Rate Option because of its availability and fantastic rates.
Our research indicates that myAutoloan rates are low for the industry. Borrowers can access rates as low as 3.99% APR for new vehicles through the marketplace. With a minimum credit score requirement of 575, myAutoloan can be a good option for people with below-average credit.
That said, the company’s $8,000 purchase minimum loan amount may mean you need to spend more on a car than you planned to get a loan from the company. In addition, myAutoloan won’t authorize a loan on a car more than 10 years old or with more than 125,000 miles on it. Some may find these restrictions a little too cumbersome.
2. Consumers Credit Union: Most Flexible Terms
Starting APR: 3.49% for 2020 or newer vehicles, 3.74% for 2016 to 2019 vehicles
Loan amounts: $250 to $100,000
Loan terms: Up to 84 months
Availability: 50 states
Minimum credit score: 640
Consumers Credit Union is an Illinois-based credit union that is now open to national membership. While the lender features average rates for the industry, it offers a wide range of terms and loan amounts, which is why our team awarded it Most Flexible Terms.
The credit union has a lot of loan options. Its best auto loan rates start at 3.49% APR for members. As long as you qualify, you can borrow any amount from $250 to $100,000 with term lengths up to 84 months.
It is important to note, however, that these rates are only for cars that were made in 2019 or later. The company has higher rates for older cars, with rates starting at 3.74% APR.
While Consumers Credit Union is a membership-based organization and not a bank, anyone can become a member. All you need to do is provide a Social Security number or a tax identification number and pay a $5 nonrefundable fee to the Consumers Cooperative Association.
3. AutoPay: Most Well-Rounded
Starting APR: 2.99% for new vehicles, 1.99% for used vehicles
Loan amounts: $2,500 to $100,000
Loan terms: 24 to 96 months
Availability: 50 states
Minimum credit score: 575
AutoPay is an online lending marketplace that offers low-interest rates for auto loans and auto loan refinancing. With its low rates and flexible terms, we award it the Most Well-Rounded of auto loan companies.
Based on our research, borrowers with good credit can find APR as low as 2.99% for new and used vehicles from AutoPay’s network of lenders. Those with bad credit may still qualify for good rates, as the company tends to approve car loans for those with a minimum credit score of 575 or greater.
With AutoPay, you also have greater flexibility with loan terms, which range from 24 to 96 months. This means that you can decide to pay off your auto loan quickly with a shorter term or space it out over several years.
4. PenFed Credit Union: Most Cohesive Process
Starting APR: 4.24% for new vehicles, 5.04% for used vehicles
Loan amounts: $500 to $150,000
Loan terms: 36 to 84 months
Availability: 50 states
Minimum credit score: 610
Pentagon Federal Credit Union, or PenFed, is a military credit union that offers competitive auto loan rates. We name it the Most Cohesive Process for auto loans because of its car buying service and availability.
While PenFed is primarily for military members and their families, it is also open to people who work for certain government agencies and nonprofit organizations. Even if you don’t fall into any of these groups, you can join by making a donation to an approved charity.
At 4.24%, PenFed’s starting APR for new vehicles is one of the lowest we’ve seen from any of the auto loan providers we researched. To get that rate, however, you’ll need to buy a new car through PenFed’s car buying service. Like with most credit unions, PenFed members are eligible for special deals, such as discounts and reimbursements for shopping at partner dealerships.
However, qualifying for a PenFed auto loan might be hard for some. The credit union only accepts borrowers with credit scores of 610 or higher. In addition, PenFed has a steep $29 charge for late loan payments.
5. iLending: Most Popular Marketplace
Starting APR: 1.99% for auto refinance
Loan amounts: Varies
Loan terms: Varies
Availability: 50 states
Minimum credit score: 560
iLending has a reputation as a refinance auto loan specialist, making it a viable option for those looking to get lower interest rates and better terms for their vehicles. The company works with a network of lenders and financial institutions to offer some of the lowest APR rates we’ve seen in the industry, with APR starting as low as 1.99% for those with good credit.
Since it functions as an auto refinance marketplace, the loan amount and terms will vary depending on which lender you choose to refinance with. iLending does not provide new or used auto loans at this time.
How can I Get the Lowest Interest Rate on a Car?
If you’re on the hunt for a new or used car, you’re looking to get the best deal possible on your auto loan and maximize your dollars. Luckily, getting a good interest rate just takes thorough research and a willingness to negotiate terms.
Here are five tips to help you get the lowest interest rate on your car loan.
Understand your credit situation and what you can afford
Your credit score plays a huge role in the interest rate you receive from a lender. A borrower with excellent credit can often get a rate that is 10 or more percentage points than one with poor credit.
If your credit is on the lower end of the scale, you may benefit by taking some time to improve it before taking out a loan. To boost your credit score, try to maintain a credit utilization rate — the percentage of your total credit you’re using — of 30% or less, and create a system for paying bills on time.
If you need to access your credit report, you can get it at no cost from any of the three major credit bureaus on annualcreditreport.com weekly through April 20, 2022. This report will give you information about your payment and credit history — though it won’t provide you with your credit score. Looking over your credit report can help you spot errors and find areas for improvement.
You can get your score for free on your credit card statement or online account. You can also buy it from a credit reporting agency.
Shop around with different lenders
Many lenders will show you your preapproved rates and terms online after you fill out and they generate a soft credit pull. Taking the time to get quotes from different lenders, both national and local, will give you more leverage in negotiations because you’ll understand the going rates with your particular credit score for the car you’re interested in.
Don’t just take into account the listed interest rate; calculate the total interest you’ll pay over the life of the loan based on your overall loan amount and term length.
While this may sound simple, a lower overall price will reduce the amount of interest you’ll pay on the loan.
You can reduce the sales price by declining add-ons like seat warmers and rear seat entertainment systems. You may also get a lower interest rate on a new car than on a used car, as used cars often have more mileage, expired warranties, and increased wear and tear. Lenders bake the increased risk of mechanical breakdown into the interest rate.
Add a cosigner
If your credit isn’t in the best of shape, you may be able to improve your rate by having someone with a good credit history cosign your loan. When you enlist a cosigner, they essentially let you “borrow” their credit score to help you get approved for a loan or to get a lower rate.
However, your cosigner will be responsible for your debt if you default on your loan, and their credit score will be negatively impacted if you can’t keep up with your payments.
Make a bigger down payment
While forking over all the cash for a new or used car usually isn’t feasible, it’s in your best interest to make as big of a down payment as you can afford. The larger your down payment, the less risk you pose to the lender, and the lower an interest rate they’re likely to offer you. You’ll also pay less in total interest because the overall amount you need to borrow will be lower.
Shorten your repayment term
You should try to take on the shortest repayment term you can afford with your budget because you’ll likely receive a lower interest rate. You’ll pay less per month with a longer repayment term, which may seem appealing, but keep in mind that you’ll cough up more in total interest because you’re spreading your payments over an extended period.
The best way to get a low-interest rate on an auto loan is by doing your research and understanding what terms make the most sense given your budget and credit history.
What is a Good APR for a Car 2022?
In 2022, new car loan rates range from 2.40% to 14.76% while used car loan rates range from 3.71% to 20.99%. The difference between a low and high annual percentage rate (APR) is based largely on your credit score.
The most important factor that decides your car loan interest rates is your credit score. The better your score, the lower your APR will be. The best rates are reserved for those with credit scores above 800, but according to Equifax, any score above 670 makes you a “low-risk borrower” and opens the door to lower average auto loan rates.
To give you an idea of what average auto loan rates you can expect based on your credit score, see the table below. These outline average auto loan rates for new and used cars based on information from the second quarter 2022 Experian State of the Auto Finance Market report.
Average Car Loan Interest Rates By Credit Score
| Credit Score | Average New Car APR | Average Used Car APR |
|---|---|---|
| 781 to 850 | 2.40% | 3.71% |
| 661 to 780 | 3.56% | 5.58% |
| 601 to 660 | 6.70% | 10.48% |
| 501 to 600 | 10.87% | 17.29% |
| 300 to 500 | 14.76% | 20.99% |
You can see that rates change drastically by credit score. This also affects what you pay back to a large degree. Let’s say you took out a $10,000 auto loan with 60-month terms to purchase a new vehicle. If you have excellent credit and get a rate of 2.40 percent, you would pay an extra $622 in interest. In other words, it costs $606 to take out a loan of $10,000 with that interest rate.
Now, let’s say you have a decent score of 650 and get a rate of 6.70 percent. In this case, you would pay an extra $1,796 in interest on top of the loan.
If a fair score gives you an average auto loan rate of 10.87 percent, you’d pay $3,007 in interest. And if you had a very high rate of 14.76 percent, you’d pay $4,170 in interest on the $10,000 loan. Ouch.
However, your credit score isn’t the only determining factor. Employment status, income, and the type of vehicle you purchase also affect rates. Having a steady income stream and purchasing a newer vehicle will result in better auto loan rate offers.
Can you Negotiate Interest Rates on Cars?
Yes, just like the price of the vehicle, the interest rate is negotiable.
The first-rate for the loan the dealer offers you may not be the lowest rate you qualify for. With dealer-arranged financing, the dealer collects information from you and forwards that information to one or more prospective auto lenders. Those lender(s) may propose a rate to the dealer to finance the loan, referred to as the “buy rate” or may decline to finance the loan.
The interest rate that you negotiate with the dealer may be higher than the “buy rate” because it may include an amount that compensates the dealer for handling the financing. Dealers may have the discretion to charge you more than the buy rate they receive from a lender, so you may be able to negotiate the interest rate the dealer quotes to you.
Ask or negotiate for a loan with better terms. Be sure to compare the financing offered through the dealership with the rate and terms of any preapproval you received from a bank, credit union, or other lenders. Choose the loan that best fits your budget.
Will Car Prices go Down When Interest Rates Rise?
With the Federal Reserve boosting a key interest rate by half a percentage point on Wednesday, borrowing costs are poised to head higher on a variety of consumer loans, including those for autos. This marks the Fed’s largest increase in more than two decades.
“In the past, interest rate hikes didn’t affect the new car market significantly because automakers subsidize many loans,” said Jessica Caldwell, executive director of insights for Edmunds.
“However, this is the biggest rate hike we’ve seen in over 20 years, so there may be a small impact but it will likely only reinforce the new vehicle buyer base of higher income shoppers,” Caldwell said.
The bigger effect will likely be felt in the used car market, she said.
“Given used car prices are already at record highs, this increase will only make this market more expensive, and buyers will be forced to sit out due to affordability or buy an older vehicle to keep payments within a digestible range.”
Amid the auto industry’s persisting struggles with limited inventory due to an ongoing computer chip shortage, consumers have largely been forced to deal with new-car prices that are up 12.5% year over year, according to the most recent data from the U.S. Bureau of Labor Statistics. The average price of used cars is up 35.3% from a year ago.
The average amount paid for a new car has reached $45,232, according to an estimate from J.D. Power and LMC Automotive. The average monthly payment is about $650 for 70.2 months (just shy of six years), according to Edmunds.com. The average rate paid for dealer financing is 4.7% and the term is 70.2 months.
For used cars, the average paid is more than $30,000, Edmunds research shows. The monthly average payment is $544 over 70.7 months with a rate of 8%.
What is a Good Interest Rate on a Car for 84 Months?
With low monthly payments, an 84-month auto loan may look like a good idea on paper. But those lower car payments come at a real financial cost: interest. And while you’ll almost certainly pay more overall than you would with a shorter-term loan, there are some situations in which an 84-month auto loan might make sense.
An 84-month auto loan gives you seven years to repay the lender. While shorter term lengths are more ideal, the most common term length in the American auto market is 72 months, according to Edmunds.
As car prices rise, 84-month auto loans are becoming more popular. Splitting your car payments up over a longer term can bring your monthly obligation down — often significantly. The downside is that with those lower monthly payments comes more time to generate interest, along with other potential risks.
Interest rates for 84-month auto loans vary widely based on lenders and details about borrowers and the vehicles they want to finance. While the term length is a factor in the overall cost of your loan, it’s not the only one.
Your credit history, income and debt obligations all help determine your lending rates. But no factor is more significant than your credit score. Borrowers with lower credit scores pay higher interest rates on average.
The table below shows the average interest rates for new and used car loans based on different credit scores, according to data from Experian.
| Credit Score | Average Loan Rate for a New Car Purchase | Average Loan Rate for a Used Car Purchase |
|---|---|---|
| 781–850 | 2.47% | 3.61% |
| 661–780 | 3.51% | 5.38% |
| 601–660 | 6.07% | 9.80% |
| 501–600 | 9.41% | 15.96% |
| 300–500 | 12.53% | 19.87% |
What is the Average Interest Rate on a Car Loan With a 800 Credit Score?
The average interest rate for a new car loan with a credit score of 800 to 809 is 2.40%.
Most dealerships will advertise plenty of incentives for buying a new vehicle, such as cash rebates, low interest rates, or special lease offers. Buying a new car will generally come with much better interest rates than buying a used vehicle.
With a credit score of 800 to 809, you will qualify for all of these offers: when super-prime buyers come around, dealers roll out the red carpet. You may wish to try several dealers and see who makes the best offer.
Here’s what you can realistically expect to get based on national averages.
| Category | Score Range | Average interest rate | Average loan amount | Average term (months) | Average monthly payment |
|---|---|---|---|---|---|
| Deep subprime | 300-500 | 14.76% | $26,914 | 71.99 | $552 |
| Subprime | 501-600 | 10.87% | $31,847 | 73.36 | $584 |
| Near prime | 601-660 | 6.70% | $36,874 | 74.17 | $604 |
| Prime | 661-780 | 3.56% | $37,433 | 71.18 | $588 |
| Super prime | 781-850 | 2.40% | $32,615 | 64.33 | $548 |
A lot of people wonder what a good interest rate is on a used car. We see incredible offers online and on TV for new car loan rates, but we rarely see used auto rates advertised. In general, borrowers will pay a higher interest rate for a used car loan.
With a credit score of 800 to 809, you should qualify for the best APR a lender offers.
The average rate for a used car loan in the 800 to 809 credit score range is 3.71% (52% higher than the average rate for a new car).
Rates are higher for used cars because their value is lower. If the lender has to repossess your car it may be difficult for them to sell it for enough to cover your balance. That means more risk to the lender. Lenders charge higher rates when their risk rises.
Even with higher interest rates, used cars can be a good deal, simply because the sticker price is often much lower than the price of a used car.
How can I Negotiate a Lower Interest Rate on a Car Loan?
The vast majority of people need to take out a loan to cover the cost of buying a vehicle. Most buyers are unaware that they can negotiate the terms of their contract before they sign the dotted line.
Below are six ways you can get a lower interest rate on your car loan.
Make sure your credit is in good standing
Customers with excellent credit scores (780 and above) can access the best interest rates on the market when they apply for a loan. Anyone with a score below 680 will likely pay higher rates on a loan of the same size because they are deemed a riskier borrower by most lenders.
If you fall on the lower end of the scale, taking some time to improve your credit score can save you thousands of dollars in interest throughout the life of your car loan.
Request a copy of your credit report, fix any errors and identify areas where you can improve your debt management practices. A good place to start is making sure you pay your monthly bills on time and in-full. Your credit score is a measure of your reliability as a borrower and punctuality goes a long way here.
If you have poor credit, enlist a cosigner
If you need a car now but don’t have time to work on your credit, consider finding a trusted friend or family member to cosign your car loan. With a cosigner, you’re essentially borrowing their good credit to get approved for financing. This also means you will be able to access lower interest rates.
The downside of this plan is that you’re asking someone else to be responsible for your debt. If you default on your loan, your cosigner will be stuck footing the bill. Your friend or family member’s credit score will also be negatively affected if you can’t keep up with payments.
Negotiate on the price of the vehicle
Before you start negotiating the terms of your loan, try to get a bargain on the actual price of the car. A lower purchase price means taking out a smaller loan and paying less in interest. The sticker price isn’t always the end of the story and there’s nothing wrong with presenting a counter-offer.
Word to the wise: don’t just pull a number out of a hat. Find out what the vehicle you’re interested in is selling for elsewhere and have some proof to back-up your offer. Every dealership is interested in making a sale. Reputable dealerships are interested in helping their customers find the right car at a price they can afford.
Do your research
Similar to the previous point, you should do your research before you start asking for a lower interest rate from your lender. When you know what kind of rates are out there, you can do a better job of negotiating.
Start by doing a quick Google search to find out what national lenders are charging for auto loans. Then, bring it closer to home by looking up interest rates from other local lenders, banks or credit unions.
If the numbers aren’t clearly listed on their website you can call and ask for a quote — inquiring won’t affect your credit score.
Make a point of asking about the Annual Percentage Rate (APR) of their loans, instead of just the interest rate. The APR is a broader measure of the cost of a loan because it includes the interest rate and any fees associated with the loan.
Evaluate the interest rate you’re offered
Customers with an excellent credit score (more than 780) may qualify for a single-digit APR loan, while those with average credit will usually be able to access a loan with 10% APR.
At Birchwood Credit, our average rate is 15%. We will help you find a payment plan that fits your lifestyle and budget, even if you have bad credit.
Secure a shorter term and make a large down payment
You should try to avoid taking on a loan with a long term. The lower monthly payments might seem attractive, but you end up paying more in interest the longer you’re locked into a loan. Car loan terms usually range from 12 to 72 months and you can save thousands of dollars in interest by opting for the shortest term you can afford.
If you can’t afford the full price of the car, but have some money to put towards a down payment you should do so. You will end up paying less in interest because the total amount you need to borrow will be lower.
What is the Best Way to Finance a New Car?
Buying a car is a major financial decision, and deciding how you’ll finance it isn’t an easy call.
1. Buying it outright
The most obvious way of financing a new car is to buy it outright. If you have enough cash on hand to pay for the entire car, you’ll immediately own the car outright. Make sure you have enough money left over after buying the car to cover any running costs or unexpected expenses. These will include things like registrations, insurance, maintenance and servicing costs.
Buying a car outright is the most straightforward way to finance a vehicle, and will also end up being the cheapest option. However, if this isn’t a financially viable option for you, there are a number of other ways you can finance a car.
2. Secured car loan
One of the most common loan products that Driva offers is a secured car loan. With this type of car loan, you’re able to take out a loan using your car as collateral. Because your car is acting as ‘security’ against the loan, lenders are reassured that if you were to default on your repayments, they would be able to recover their funds by repossessing the car.
As a result, secured car loans are typically accompanied by lower interest rates and more flexible loan conditions, as your lender will view you as a low risk borrower. Secured car loans are typically most suitable for individuals or businesses who are looking to purchase a newer car.
One of the main factors that many lenders will consider when pricing your loan is your credit score. For many lenders, the higher your credit score, the lower rate they’ll be able to give you.
However, every lender has different lending criteria, so even if you don’t have a great credit score, it’s still worth considering a secured car loan as an option. We’re pretty confident that one of the thirty lenders on our panel will be able to help you finance your new car.
3. Unsecured car loan
An unsecured car loan, by comparison, means that you are not using your car as security against the loan. Because the lender doesn’t have any collateral over the loan, they will normally charge a higher interest rate and have stricter lending conditions.
An unsecured loan means that if you default on your repayments, the lender isn’t able to simply take back your vehicle (though they may commence legal proceedings!). Unsecured car loans are typically best suited for older, used vehicles.
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Like with a secured loan, many lenders will consider your credit score before pricing your loan. Making sure you’ve paid off your existing debts, as well as continuing to make payments on time, can improve your credit score overtime, meaning you’ll be able to pay less interest on future loans.
All the lenders that Driva works with offer fixed rates loans, so regardless of whether you’re getting a secured or unsecured loan, you can be confident that the amount you’ll pay each month in repayments isn’t going to change.
This makes it easier to budget and plan for the future. However, it also means that the only way you’d be able to access a lower interest rate down the line is to refinance your car.
4. Hire purchase
A hire purchase is a great option if you’re wanting to buy a car for a business purpose, but don’t have the cash on hand to do so immediately. With a hire purchase, you’ll need to pay a deposit and then pay off the loan in installments. At the end of the repayment period you’ll gain complete ownership over the vehicle. Hire purchase agreements tend to be best suited for newer cars, as you might find the interest rates are higher for used cars.
Buying a car with a hire purchase is a great way to spread out the cost of the vehicle over several years. Additionally, depending on the lender you go with, you’ll probably have some amount of flexibility over the conditions of your repayments terms. This could be the length of your loan or whether you make your repayments weekly, fortnightly or monthly. In many cases, the better your credit score, the better loan conditions and rates you’ll be able to access.
One of the main drawbacks of a hire purchase, as with any other loan finance product, is that you’ll incur a number of fees and charges along the way. This will normally include things like a set-up fee, interest and sometimes monthly fees – all of which will mean you’ll spend more overall than if you had bought it outright.
5. Credit card
Another option for financing your new car is to use your credit card. This will only be possible if your credit card limit is high enough for the price of the car you’re looking to buy. Financing your car with a credit card can be a great option if the price of the car is very low, and therefore ineligible for a loan with many lenders.
Make sure you check what interest rate you’ll be paying on your credit card, and compare that with other loan options like a car loan or personal loan, so you can be sure that you’re paying the best price.
If you decide to use your credit card to buy a car, make sure you give your bank a call first to give them a heads up. Large purchases can be flagged as possible fraudulent transactions, so it’s best to let them know ahead of time that you’re planning on making a large transaction, so you can avoid any inconvenience.
6. Chattel mortgage (business loan)
Finally, if none of these finance options have been quite right for your circumstances, you might consider a chattel mortgage. Chattel mortgages are a very popular finance option among business owners and operators and have a similar structure to fixed-rate traditional mortgages (chattel refers to the car you’re financing, and mortgage refers to the loan).
With this type of a finance product, the lender will use your new car as the security for your loan, and you’ll gain ownership over the car immediately. You’ll then pay off the loan from the income that the asset generates in your business. It’s important to note that, like with any secured finance product, if you’re unable to meet your repayments, your lender might be able to repossess your car.
Chattel mortgages are popular for a number of reasons, but one of the main ones is that it has several associated tax benefits. These can include tax deductions for interest payments and depreciation, as well as the potential to claim the GST paid on the vehicle as an Input Tax Credit.
