The type of car you choose can affect your interest rate.

Rapid Finance on 20 September 2016

Do cheap cars have higher car loan interest rates?

In most cases no, cheap cars typically do not have higher interest rates compared to more expensive cars. However, used cars generally have higher interest rates than new cars even though the used cars are usually cheaper.

This is because with a secured car loan the car purchased is usually used as 'security' on the loan. Security means the asset can be repossessed and sold in the event that you default on your loan.

Used cars typically have lower resale values. Also, after 3 - 5 years on the road most cars see a steep decline in resale value. This means that as security used cars are often worth less than new cars.

The less the security is worth, the less the lender can recover should they be required to repossess and resell the vehicle. This equals higher risk for the lender.

To compensate for that higher risk, the lender may choose to charge you a higher interest rate.

car loans thumbnail red car saleswoman shortComparing car loan interest rates?

You can see our lowest available car loan interest rates on our car loans page.

Includes rates for secured, commercial, and used car loans.

Check out our latest interest rates

Lower purchase price vs. higher interest rates

Purchasing a used vehicle can be a smart move, especially if you're on a tight budget.

Cars begin to depreciate the moment they get onto the road. By choosing a car that's 2 to 3 years old, you could get a late model vehicle with as much 20 - 40% off the original asking price.

Here's how the costs of new cars and used cars can compare, including loan interest costs.

 New CarUsed Car


2016 Ford Falcon XR6 FG X Auto

2014 Ford Falcon XR6 FG X Auto

Purchase Price



Loan Term

3 years

3 years

Interest Rate



Total Interest



Total Cost (inc. loan interest)



As you can see, despite the higher interest rate, the used car is still cheaper due to the substantially lower purchase price. Therefore, your overall your costs would be lower with the used vehicle, even though the car loan interest rates are still higher.

2016 Ford Falcon XR6 Turbo Sprint white

2016 Ford Falcon XR6. Image courtesy of

*These car loan interest rates have been collected using publicly available information and are verified correct as of September, 2016. They 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.

business woman driving business car thumbnailCould you get a lower rate with a business car loan?

Do you use your vehicle partly for work purposes? You may be eligible for a business car loan.

Business car loans typically feature lower car loan interest rates, when compared to secured car loans.

Find out more about business car loans

Can cheap cars be more difficult to finance?

In selected circumstances and depending on your credit history, finding finance for a cheap used car may be more difficult than finding finance for a more expensive new car. Common roadblocks can appear with:

1. Used cars aged 7 years or older

Some lenders do not offer their standard secured car loans on vehicles which are over 7 years old. This is due to the resale value (and security value) of 7 year old vehicles being too low.

2. Bad credit borrowers

Borrowers with poor credit histories often already have a difficult time securing finance. Applying for a less reliable and 'cheaper' vehicle could be another potential black mark on your credit application.

3. No deposit loans

As the name suggests, a no deposit loan is a loan type which is available without an upfront deposit. Without that deposit, security is more important, so choice of vehicle may be a factor in gaining approval.

Alternative loan options for cheap cars

There are alternatives to secured car loans and these may be suitable if you are looking to finance a particularly low value vehicle, such as vehicles valued at below $10,000.

For example, you may want to buy a non-roadworthy car for $5,000 with the intention of 'doing it up' to get the car back on the road. This is often the case with enthusiasts.

In this scenario, a secured car loan would not be a viable option. However, a personal loan may be suitable.

A personal loan is a type of unsecured loan which can be used to finance comparatively small amounts. Personal loan interest rates can be higher than secured car loan interest rates. Still, they may provide a solution when a secured car loan is not an option.

"Used cars which are generally cheaper to buy may attract higher interest rates."

Searching for lower car loan interest rates?

At Rapid Finance, our loan specialists have access to hundreds of loan products, including secured and unsecured loans, business loans, and used car loans.

Depending on your situation, we may be able to help you to find lower car loan interest rates - compared to the those offered by your car dealer or bank.

To find out more, visit our car loans page or call 1300 467 274