Best New Car Loan Rates from 5.99%

What is a new car loan?

A new car loan is a type of personal loan that allows you to finance a new or near-new vehicle typically up to five years old.

When you take out the loan, the lender will either cover the entire cost of the vehicle, or the amount remaining after you've paid a deposit. Either way, you'll sign an agreement with the lender to repay the loan amount (with interest) in regular installments over a set period of time.

As part of the loan approval process, your lender will need to know which car you're wanting to buy so they can assess its value. Some lenders also offer pre-approval for a new car loan, similar to a home loan, so you know how much you can spend. But after you've found your dream car, it pays to shop around to get a loan deal that best suits you.

New car loan considerations

When you're researching the market, remember you aren't limited to the finance being offered through an auto dealership. Banks, non-banks, and other finance lenders offer car loans with varying interest rates, terms, and loan features that may suit you better. Here are some things to consider:

Interest rates

Interest rates are, of course, a primary consideration in looking for a new car loan but there are other factors to take into account:

• Comparison rates: Before you're lured by what seems an attractive interest rate, be sure to check the comparison rate which can give a clearer picture of the loan's real cost by factoring in any additional fees and charges that may be attached to the loan.

• Fixed rates: Fixed-rate loans tend to be the most common type of car loan. With a fixed-rate loan, your repayments will remain the same for the duration of your loan, allowing you to know exactly what you're up for.

• Variable rates: Variable rates will fluctuate during the term of your loan, meaning they could go up or down depending on market fluctuations. These loans provide less certainty on payment amounts but can suit borrowers who want more flexibility.

Unsecured vs secured loan

Another decision is whether you're going to opt for a secured or unsecured car loan. Secured car loans use the car as security against the loan… as you might have guessed. These are the most common type of car loans, meaning if you default on the loan, your lender may repossess your car.

With unsecured loans, the car is not held as security against the loan but if you fail to make your repayments, the lender may come after you in another fashion. Given the riskier nature of an unsecured car loan for a lender, unsecured car loans generally have higher interest rates.

Fees

While the comparison rate will give you some indication of fees, you'll need to check the details of each loan to see exactly what fees and charges will be levied. As well as upfront application fees, these could include:

• Annual or monthly account keeping fees

• Fees for missed or late payments, or early repayment of the loan

• Exit fees

Loan term

This is the length of time you have to pay off the loan. New car loans typically have loan terms of three to five years although seven-year car loans are also available on the market.

Generally, the shorter your loan term, the less interest you'll ultimately pay. However, the trade-off is you will have higher weekly, fortnightly, or monthly payments. The rule of thumb when looking at a car loan is to choose the shortest term you can according to your budget.

Extra features

Some lenders may offer extra features with their new car loans such as the option to make extra fee-free repayments, or a redraw facility that allows you to withdraw any additional repayments should you need the funds for another purpose. Other features may include fast approval times or a balloon payment option.

Balloon payments are an agreed-upon lump sum payable at the end of the loan term, often around 30-50% of the loan's total value. These effectively reduce regular repayments during the course of the loan.

How to get a low interest rate on a new car loan

• Have a good credit score: Many lenders offer tiered interest rates, which can be based on your credit score. The higher your score, the lower your interest rate is likely to be.

• Get a secured car loan: As we've covered, a secured car loan means that if you default on the loan, your lender may repossess your car. As these pose less risk to the lender, secured car loans tend to come with lower interest rates.

• Have a deposit or choose a balloon: These options can effectively lower the total interest paid over the life of the loan. Even a modest deposit can help reduce the interest you'll pay. Similarly, a balloon payment, applied at the end of the loan, can keep your repayments down. The trick is to ensure you're well prepared to cover the large payment at the end.

• Shop around: This should go without saying. Think outside the box of dealership finance or the big banks. There are many lenders out there who may be able to offer better deals.

Used car loans vs new car loans

Before you sign up to a new car loan, consider whether you need a new car. After all, there's nothing that depreciates quite so fast as a brand-new car, so it can be quite common for the amount outstanding on a new car loan to be more than the value of the car.

That's why it's worth considering a near-new or demonstration vehicle that's already taken a hit of depreciation while still getting you into a relatively new car. New car loans are typically restricted to cars that are either brand new or less than two or three years old at most. Used car loans are typically for cars up to around seven years old and often their interest rates can be similar to those of an equivalent new car loan.

Dealership finance vs other car loans

Both options have their pros and cons. Again, it all depends on your needs and circumstances.

Dealership finance will usually come with the dealer getting a cut from the loan you sign up so bear in mind, that cost will be on top. But they'll handle the application process and paperwork on your behalf. They also may be more likely to consider you for a loan if your credit record isn't stellar.

Car loans direct from the lender come without a middleman mark-up although you may have to do a bit more legwork in the loan application process. Bank lenders particularly can also give you pre-approval, so you'll know how much you can afford in purchasing a car.