Car Loan Interest Rates Guide – How It Works

Calculate your interest payments with car loan interest rates. Find out how lenders determine your rate. Moreover, finding the right lender can potentially save you money. Read on for Monzi’s complete guide. Let’s go!

Please note, certain ideas and products presented in this article may not be offered by Monzi nor the lenders we work with. This article presents only general information. Consider seeking professional financial, taxation, legal or other advice to check how the information and ideas presented on this website relate to your unique circumstances.

Car loan interest rates

So you’ve been offered a car loan, but what does the interest rate mean?

In short, the interest rate calculates your interest payment as a percentage of your outstanding loan balance. Typically, it will be expressed as an annual percentage.

Given that it calculates your interest payment, you’ve probably worked out that lower is better. The lower your rate, the less interest you will pay. Simple, right?

While this provides the context, there’s so much more to know about car loan interest rates. To guide you through it all, Monzi’s here. We’ve assembled this all-encompassing guide covering all the details you might need to know.

Secured car loans: what are they?

Secured car loans are generally guaranteed with the car you intend to buy.

In short, you must first apply and be approved by a lender. Then, as part of your loan agreement, you must use the car you purchase as security. Finally, lenders may repossess your asset if you fail to repay your secured loan.

The alternative to this is an unsecured car loan. In this case, there’s no need to attach an asset as security. Simply make your regular repayments until you’ve paid off the balance. However, unsecured loans are typically smaller loans, so if you’re looking to borrow a large sum, then a secured loan may be your only option.

Car loan interest rates: how do lenders calculate your rate?

Interest rates may be different between loans. This is because lenders may consider a range of available information to determine your interest rate.

These considerations include:

  • Your credit history: reliable borrowers may be able to access lower rates. Conversely, bad credit loans typically incur higher rates.
  • Secured or unsecured loan: lenders consider secured loans less risky. Therefore, you may get a better rate.
  • Your loan amount: a $300 loan may have a different rate than a $10,000, given the significant difference between them.

Is it easier to get a secured loan?

While thee are no guarantees, lenders are typically more willing to offer secured loans. After all, they’re less risky, given that you must provide an asset as collateral.

Further to this, if you’ve got poor credit, then a secured loan may be a handy option for you. As the loan is guaranteed, lenders may be more lenient and will to offer loans for bad credit. As a result, you may be able to access finance that previously was not available to you.

However, lenders retain the right to extend credit where they see fit. Securing a loan does not mean approval will be certain.

How can I get lower car loan interest rates?

While not guaranteed, there are two options that may help you access lower interest rates.

The first is having good credit. Obviously, this won’t be for everyone. However, if you’ve been trustworthy and reliable, then lenders may be willing to offer lower interest rates. After all, the likelihood that you will default is lower, based on your history.

If your credit isn’t too flash, then your other option could be to apply for a secured loan. With this, you’ll need to attach an asset as security in order to guarantee it. As a result, these loans are less risky for your lender, meaning you may be offered a lower secured car loan rate.

However, keep in mind that it is ultimately your lender’s decision. While good credit and securing your loan may help you access a lower rate, this is not certain.

Is it a good idea to finance a car?

While paying cash and avoiding debt would be an ideal scenario, often that’s not possible in reality. After all, cars are a significant investment and usually don’t come cheap.

As a result, financing a car may be your only option, especially if you need a vehicle soon.

In any case, financing a car is not necessarily a bad idea. It simply comes down to how you manage it. So long as you only borrow what you can afford to repay, you can potentially pay off your car loan without issue.

Be careful, though, loans can be risky. Poorly managed debt can result in missed repayments and defaults, both of which can severely impact your credit score. This may inhibit your ability to access credit in the future.

What is a good interest rate on an auto loan?

As discussed, this will vary depending on your loan and financial situation. As a result, it isn’t easy to provide a clear answer.

For instance, if you’ve got good credit and apply for a secured loan, your interest rate may be different from the rate offered on a bad credit secured personal loan.

Ultimately, it’s about finding the most competitive rate. Compare any loans that you are offered and only agree if you believe the repayments are affordable and manageable.

Is it better to get a car loan from a lender or dealership?

Ultimately, it’s up to you. Compare your options to determine which one is right for you.

Typically, dealership finance is more simple and convenient. When you purchase your vehicle, you can simply arrange the finance at the same time. Moreover, dealers may offer competitive rates.

On the other hand, a car loan through a lender adds an additional step. You must apply and be approved. Then, once you have your cash, you can go to the dealership and purchase your car. From there, your costs are divided into even repayments over the coming months or years.

Can you negotiate car loan interest rates?

If you are applying for finance through a dealership, then you can potentially negotiate the interest rate. If you’re in a solid financial position and have a good credit score, you may be successful.

On the other hand, if you’re applying for a car loan through a personal loan lender, then your interest rate will not be negotiable. Lenders will assess your application and if you are offered a loan, the interest rate will be clearly outlined in your contract.

Car loan interest rates two women sitting at desk with paper

Can you pay off a car loan early?

Yes. However, do check the fine print of your loan contract to ensure this is possible.

Lenders may offer this option; if you’ve got the savings to do it, then getting out of debt early may not be the worst idea.

However, keep in mind that you may be charged an early exit fee. This is simply an additional amount that you must pay on top of the balance of your loan. So, ensure you have the cash to cover this too.

As a further note, while repaying your loan early may seem like the right thing to do, if you are managing your repayments comfortably, it may be better to continue on your regular schedule. You could save the additional cash or allocate it elsewhere. However, it’s your decision.

How long should I finance a car for?

This is your decision. Ultimately, it will come down to the amount you borrow as well as your financial situation.

If you borrow a large sum, then you may have a range of repayment terms to choose from. For instance, you may be able to pay the loan off over 13 to 24 months.

Obviously, a shorter period would come with larger regular repayments, while a longer period would come with smaller repayments.

At the end of the day, it’s up to you to find the right balance for your financial situation. Ensure your repayments are manageable and will fit with your budget. From there, you can determine how long you should finance a car for.

What is a good credit score to buy a car?

Ultimately, the higher your credit score the better. After all, it reflects your history as a borrower. So, the higher your score, the more reliable you have been in the past.

In saying that, some lenders these days may offer bad credit car finance. That means even if your credit score isn’t looking too flash, you may still be able to access the finance you need.

In assessing your application, they may focus their attention on your financial situation. While your credit score may be considered, your income and expenses may provide the lender with an idea of the repayments that could be affordable for you.

In saying this, while bad credit applicants may be considered, approval is not certain. Lenders will assess your application to determine your suitability for credit.

Car loan interest rate calculator

With car loan calculators, you can get free estimates of what your total loan costs and repayments may be. All you need to do is enter your loan amount, repayment period and interest rate and it will spit out your estimates.

One useful tool is the Moneysmart online personal loan calculator. It’s easy to use and is totally free.

Bear in mind, the loan slider on our site shows examples of weekly, fortnightly and monthly repayments. These values should be used only as a guide; the actual cost of your loan may vary between lenders.

Car loans comparison

If you’re comparing loans, there are a few key features you can look at. Selecting the right loan can potentially save you money, so put in the time and effort to ensure you get a loan that works for you.

Key loan elements to compare include:

  • Car loan interest rates offered: look for low rates to reduce your interest costs.
  • Fees and charges (e.g. establishment or late fees).
  • Comparison rate: includes your interest rate and fees to give you an idea of the total loan cost.
  • How much can you borrow from the lender?
  • What repayment terms are on offer?
  • Does the lender have good reviews from past borrowers?

Car loan interest rates and Monzi

Now that you know all the key details about car loan interest rates, you can consider applying for a car loan. At Monzi, we know plenty of great lenders who may be able to offer a personal loan which you can spend on your new vehicle.

Just bear in mind, you will need to use one of your existing assets as security. In other words, you may not be able to use the car you intend to buy as collateral.

Apply through our lender-finder service and we may be able to pair you with a great lender in just 60 minutes. All it takes is one simple application and you can be on the path to getting the purchasing your new vehicle.

The lenders on our panel may be able to offer the following:

Small personal loan$300 to $2,000No
Medium personal loan$2,100 to $4,600Yes
Large personal loan$5,000 to $10,000Yes

Ready to start? Scroll up and begin your application online.

Before you go, are you interested in learning more about interest rates? If so, why not check out our article on term deposit rates?

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You won't use a penny to apply for our lender-finding service, but here's some costs you could expect from a lender

Loan amount

$300 - $2,000


12 months (minimum)

12 months (maximum)


20% upfront establishment fee

+ 4% monthly fee


Loan Amount of $1,000 over 6 months repayable weekly (25 weekly repayments). $1,000 (Principal Amount) + $200 (20% Establishment Fee) + $240 (fees based on 4% per month over 25 weeks) = $1,440 total repayable in 25 weekly installments of $57.60.

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR) %. The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. The minimum and maximum loan term is 12 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

Loan amount

$2,001 - $4,600


13 months (minimum)

24 months (maximum)


48% Annual Percentage Rate (APR)

67.41% Comparison Rate p.a.


Loan Amount of $3,000 over 18 months repayable weekly (78 weekly repayments). $3,000 (Principal Amount) + $400 (Establishment Fee) + $1,379.06 (reducing interest) = $4,779.06 total repayable over 18 months with weekly installments of $61.27.

The Annual Percentage Rate (APR) for Secured Medium Loans is 48%. The Typical Comparison Rate is 67.41% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.

Loan amount

$5,000 - $10,000


13 months (minimum)

24 months (maximum)


21.24% Annual Percentage Rate (APR)

48% Comparison Rate p.a.


Loan Amount of $10,000 over 24 months repayable weekly (104 weekly repayments). $10,000 (Principal Amount) + $5,577.12 (Interest) = $15,577.12 total repayable over 24 months with weekly installments of $149.78.

The Annual Percentage Rate (APR) for Secured Large Amount Loans is 48%. Maximum Comparison Rate is 48% p.a. The minimum loan term is 13 months and the maximum loan term is 24 months. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate with the lender that finances your loan. Click here to see a worked example.