A car is a necessity, and one way to finance your new set of wheels is with a variable rate car loan.
If you're in the market to upgrade your car or even to buy your first vehicle, you might be wondering what the right type of loan is for you. A variable rate loan offers you a flexible way to finance your new vehicle purchase. There are a few different type of variable loans to consider, both for new and used vehicles, and for secured and unsecured loans. Read more in our guide below.
Comparison of variable rate car loans
What is variable rate car loan?
This type of loan has a variable rate of interest, so your repayments may fluctuate if the market interest rates change.
This means your interest rate may increase or decrease.
However, your loan also comes with increased repayment flexibility when compared to fixed rate loan.
What are the different types of car loans with a variable rate?
When it comes to car loans with variable rates, there are two main loan types:
- Unsecured car loans.
With unsecured car loans, the lender does not require a guarantee. In the event that you are unable to repay the loan, the lender does not have any right to take your assets. Interest rates tend to be higher on unsecured loans. - Secured car loans.
This type of loan requires a vehicle as a guarantee in order to be approved for the loan. If you default on your repayments the lender has the right to sell the guaranteed asset in order to reclaim their losses.
Questions to ask when you compare these types of loans
Considering the following factors can help you compare your variable rate loan options and find the right one for you:
- What interest rate will you be charged?
Even though the rate is variable, looking at the rate that applies to the loan when you're comparing will give you an idea of the competitiveness of the product. - What fees comes with the loan?
Look for upfront fees such as loan establishment fees as well as ongoing fees such as monthly and annual fees. - Can you make additional repayments?
Variable rate loans tend to be more flexible in terms of allowing additional repayments, so check if you are able to make extra or lump sum repayments. - Can you repay the loan early without penalty?
This is another common feature of variable rate loans; check if an early prepayment or early termination fee applies.
Things to be careful with variable car loans
- When taking out a variable car loan try to avoid long term loans. The longer you stay paying out variable rate car loan, the higher the risk of the interest rates going up. If you do take out longer loan terms opt for a loan that does not charge you for early repayments.
- If you are taking out a loan with a dealership, make sure that the interest rate isn’t higher than average. It is crucial to ensure you do a comparison before committing to anything with them. Ask the dealer about fees, charges, balloon payments and the comparison rate.
- If your application for a car loan has been declined a by lender, it may be a good idea to wait a few months before applying again. More applications will look bad on your credit history. You can use the services of a car loan broker beforehand to maximise your chances of approval.
Questions you've asked about variable rate car loans
Where can I conduct a comparison of Australian car loans?
You can start your comparison of variable rate car loans on this page. You can also see our car loan comparison, we’ve also included a guide as to how to compare them. Remember to compare loans side by side to see how each one stacks up.
Can you refinance car loans?
Yes. To learn more about this process, have a read of our refinancing car loans guide. You can also refinance a balloon payment if your finance has this option. Keep in mind that this can mean you end up paying more in interest over the extended period of time.
Do you have a car loan calculator I can use?
We have a personal loan calculator that can help you estimate the amount your loan will cost.
Can I switch from a variable rate loan to a fixed rate?
You'll need to refinance your existing loan to be able to switch the type of interest.
