Like other types of loans, car loans generally require you to make repayments over a set period of time. However, some car loans may allow you to make additional repayments or pay off your entire loan early.
If you're considering a car loan and want the ability to pay it off early, read our guide to see which loans allow you to do so, and any fees you would need to pay.
There are a few different types of early repayments:
Additional or lump sum payments. These are made during the loan term and do not result in your loan being repaid in full. Lenders still may place restrictions on these payments, especially with fixed rate loans. On variable rate loans, you will find fewer restrictions and you may also be able to redraw additional payments using a redraw facility.
Repaying your entire loan on a variable rate loan. You will find fewer restrictions with a variable rate loan on repaying your entire loan amount before the end of the loan term. In this situation, you repay the loan balance on a variable rate loan or you will be out of your fixed rate period. Break fees are not likely to apply as lenders do not lose as much from letting you repay early.
Repaying your entire loan amount during a fixed rate period. This is where you will find the most restrictions applied. Repaying your entire loan early in this scenario involves paying whatever the loan balance is due to the lender during a fixed rate period, or where a fixed rate already applies to a loan. Here, break costs and administration fees are likely to apply to help the lender cover costs lost to them.
What is the benefit of paying your loan off early?
Repaying your car loan early can help lower the cost of your loan by limiting the amount of interest you pay. However, if you are in a position to repay your car loan early, you should always consider if any penalties or fees will apply, as the cost of these may be bigger than the savings you would make from repaying the loan early.
CUA Fixed Rate Car Loan: 7.16% p.a. comparison rate. A car loan suitable for new vehicle purchases with no monthly administration fees.
IMB New Car Loan: 5.84% p.a. comparison rate. A new car loan with no monthly service fees and no early repayment.
AutoCarLoans: 6.64% p.a. comparison rate. Autocarloans can match you with a loan that suits your needs.
What else should I know about car loan repayments?
Your car loan repayments will affect how you deal with your loan, so examine them carefully. Before you send through an application, make sure you have considered:
How often you make repayments. Lenders usually give you the option of making weekly, fortnightly or monthly repayments. This lets you line them up with your budget.
The flexibility of the repayment options. Check whether you are able to make additional repayments without penalty or if there is a cap on how many additional payments you can make.
How you need to make repayments. Repayments are usually direct debited out of your account automatically, but you may be given other options to pay off your loan. BPAY, electronic transfer and even in-branch deposits may be available.
Making additional repayments on your car loan can be a helpful option that can help you save down the track, but it's not the only feature that lenders have on offer. Remember to compare car loans across all fees, features and rates to find the right one for you.
Elizabeth Barry is Finder's global fintech editor. She has written about finance for over five years and has been featured in a range of publications and media including Seven News, the ABC, Mamamia, Dynamic Business and Financy. Elizabeth has a Bachelor of Communications and a Master of Creative Writing from the University of Technology Sydney. In 2017, she received the Highly Commended award for Best New Journalist at The Lizzies. Elizabeth has found writing about innovations in financial services to be her passion (which has surprised no one more than herself).
You'll receive a fixed rate from 5.69% p.a. A larger loan of $5,000 or more to help you buy a new or used car. 5-hour pre approval available and no ongoing fees. Note: Product only available to residents of Victoria.
You'll receive a fixed or variable rate depending on the lender you are approved with Apply for up to $150,000 and use cash or trade in a vehicle to use as a deposit. Optional balloon payment available.
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