What should you compare when you compare car loans?

Rapid Finance on 6 December 2016

Before buying, Australians regularly spend months comparing cars.

However, when it comes to car loans, we all-too-often take the first deal on offer.

And that's crazy! Because the cheapest car loans can save us much more than a slightly cheaper car price.

So, instead of settling on dealer finance or a loan from your bank, take some time and compare your car loan options. It could save you hundreds, even thousands in the long run.

Here are five things to compare when you compare car loans.

Just looking for the best car loan? See our car loans page or speak to a loan specialist on 1300 467 274

5. Compare all costs. Not just interest rates.

Your interest rate determines how much interest you will pay on your car loan. It is calculated as a percent and is usually advertised as per annum (yearly).

Naturally, this is the number many people focus on. After all, a lower interest rate does mean lower interest costs. This is also why lenders typically tout their interest rates first.

However, it's important to remember that interest rates don't always tell the full story.

compare thinking

There's still:

  • Vehicle costs
  • Loan fees and charges
  • Setup costs
  • Potential penalties

When you consider all costs you may find that the cheapest car loans actually have higher interest rates but lower costs overall.

4. Calculate total fees and charges

Most lenders charge at least some kind of fee on their car loans. And the cost of these fees can differ considerably between lenders and loan products.

So take out the calculator, before you take out your loan.

Calculate and compare car loans in terms of fees and charges, and you can find out which are the cheapest car loans overall.

Fees and charges can include the following.



Charge for setting up your car loan

Loan service

A monthly charge for keeping the loan active

Late payment

Charge that applies for late payments

Early repayment

Fee for paying out your loan early


Banking fees and government charges

signing deal couple3. Compare car loans on features

Loans come in all shapes and sizes, and depending on your needs, some may be more suitable than others.

3 loan features which may make your car loan more manageable include:

1. Balloon payments

A balloon payment, also known as a residual, is a lump sum payment placed at the end of your car loan. The purpose is to reduce your monthly repayments by moving some of your loan amount to the end of your loan term, as a one off payment.

2. No charge for early payments

Some loans charge you for making early repayments or for paying out early. Others do not. So if you think you may make additional payments, or that you may conclude your loan early, ensure you choose a loan which features no charge for early repayments.

3. Borrow additional funds

A number of loan products allow you to borrow more than the value of your chosen car. The additional funds can then be used to cover car-related expenses, such as insurance, registration, or business related vehicle modifications.

Note: these features may not be available on the cheapest car loans.

2. Contrast loan terms

Consumers regularly choose lengthier loan terms to make their car loans more manageable. This is because longer loan terms mean lower, more manageable monthly repayments.

The downside is that the lengthier your loan term, the more you pay in total interest. Therefore, the cheapest car loans typically have the shortest loan terms.

For example, here is what the difference in interest between a 3 and 5 year loan term could be on a loan for a 2016 Toyota Hilux Workmate valued at $43,990.

 3 year loan term5 year loan term

Amount borrowed



Comparison rate (%)

6.05% p.a.

6.05% p.a.

Monthly repayments



Total interest paid






As you can see, when we compare car loans and their loan terms, the monthly repayments are lower on the longer term, however, the overall interest paid is much higher.

Note: These rates are used for illustrative purposes only, and may not reflect the lowest or highest rate available to you. For information specific to your situation, speak with a finance professional.

1. Find out if 0% Finance is really cheaper

hanging out the window

0% finance, or finance with 0 interest costs, is occasionally offered by car dealers.

At first, it sounds great. How can you get a better deal than absolutely no interest? These must be the cheapest car loans available right? Well, not necessarily.

To compensate for that 0% interest, manufacturers regularly inflate the costs of their vehicles.

In practice, this often means adding thousands of dollars onto the cost of your car. So you could end up paying $23,000 for $20,000 car, just to get that 0% interest.

This means your overall costs on a 0% finance car loan could be greater. And that you may be able to save money in the long term by choosing a comparable car loan with an interest rate of 5 - 6%.

"Choice of car finance can have the biggest effect on our vehicle's total costs."

Ready to compare car loans? We could help.

At Rapid Finance, we are your car loan specialists. We have over 17 years industry experience and have built our reputation on tailored solutions and superior customer service.

With a fast application process and access to hundreds of finance products, we make it easy to compare car loans. Whether you're after personal or commercial car finance, we could help you.

Learn more on our car loans page, or by calling 1300 467 274