What is a low interest rate for a car loan?
The lowest interest rate for your car loan is determined by a variety of factors, including your personal credit profile, market rates set by lenders, and the RBA rate.
The interest rate that you'll be offered can vary between lenders, which is one reason why using a car loan broker's expertise to match you with a lender can save you quite a bit.
Getting low interest car loans
This article will focus on rates for consumer car loans at the beginning of 2018. We'll discuss the low-interest car loans that you can get if you have an excellent, good or poor credit rating, and what you can do to ensure that you get the lowest possible car loan rate.
Note that if you are interested in commercial car loans, the rates can be very slightly lower, depending on your business turnover and financial profile.
| Low Interest Car Loan Criteria | Credit Score | Employment | Residence | Credit Behaviour | Deposit |
| Strong Profile | 833-1200 | Stable | Home owner | No defaults | Strong saving history |
| Good Profile | 622-822 | Stable | Long-term renting real estate or home owner | No defaults | Savings - deposit for car |
| Weak Profile | 0-621 | Stable | Long-term renting real estate or home owner | Paid credit defaults | Savings - deposit for car |
Low-interest car loans for a strong financial profile
A low-interest rate for car loans starts from 4.8%* when you're buying a brand new car with an excellent credit rating.
A client who qualifies for this lowest interest rate car loan will have the following financial profile:
- Credit Score of 833-1200
- Property owner with a mortgage
- Stable long-term employment in their role or long history of running a successful business
- Strong savings history
- No credit defaults
- Car loan is secured against a new car
Low interest car loans for a good financial profile
Low-interest car loans for an applicant with a good credit profile will start from around 7%* when you take out a secured car loan to buy a new car.
To qualify for a good credit car loan interest rate, you'll have the following financial profile:
- Credit Score of 622-832
- Long-term renting with a real estate agent or property owner
- Stable, long-term employment or business owner
- No credit defaults
- Car loan is secured against the car purchased, which must be less than seven years old
- Provide a deposit towards the car purchase
Low interest car loans for a weak financial profile
Low interest car loans for an applicant with a poor credit profile will be around 8-12%*, for a secured car loan to buy a new car. A poor credit profile may mean that you have some payment defaults. A poor financial profile may include:
- Credit Score of 0-621
- Paid credit defaults
- Unpaid credit defaults
- Discharged bankruptcy
- Part IX Debt Agreement
The size of these defaults or bankruptcy, and time that's passed since it occurred will impact your interest rate. When the credit default is under a payment arrangement or paid, and it is less than $7,000, you'll be in a better position to get a car loan.
To get a low interest weak financial profile car loan you'll need:
- Stable employment
- Income high enough to afford payments
- Long-term real estate rental or property ownership
- A large deposit for the purchase
- Consider having a family member co-sign your car loan
If you need a commercial car loan with a weaker credit profile, you will need to provide full tax returns for the recent financial year.
Remember that if you do take out a car loan with a weaker credit profile, you can refinance after two years to a good credit profile car loan when you conduct your finances wisely during this time period.
How the car you buy affects your car loan
The car that you purchase also affects the low-interest car loan that you qualify for.
If you buy a brand new car that has low depreciation, you'll get a lower rate.
This doesn't necessarily mean that you should buy a brand new car. Your choice of car should depend on what you can realistically afford, and the length of car loan you are comfortable taking out right now.
Providing a deposit for a car that's considered a 'riskier' purchase will also help to keep your interest rate low. A car is considered more of a risk if it's:
- A vintage model
- Has aftermarket modifications
- Older than five years, or
- Purchased through a private sale
Applying for your low interest car loan
To get your low-interest car loan, no matter which bracket you fall into, there are some things you can do before you apply to put yourself in the best possible position.
- Find out what your credit score is
- Demonstrate a strong savings history
- Select a car you can afford
- Seek advice to ensure you are matched to the best loan product available
Car loan interest rates are also impacted by competition in the market, so when new lenders enter the market they may offer deals much better than established banks are offering. A lending specialist can inform you of the range of options available when you click through to get a low interest car loan quote.
Learn more about getting a low interest car loan when you understand how to pick the best car loan for you. You can also prepare for your car loan application using the car loan approval checklist.
*Car loan rates are current at 23 February 2018.
Tom Caesar is the Managing Director of The Positive Group, a group of Australian financial services companies offering a broad range of finance to clients Australia wide. The Positive Group assist clients in the areas of car finance, mortgages, insurance & wealth management. Tom has been in car & asset finance for over 10 years. Tom regularly contributes articles on car finance, insurance, technology and business growth, drawing on his experience of starting his own brokerage in 2009.