The short version
- New cars usually get a lender's lowest car loan rates, as they're easy to value.
- Compare dealer and carmaker finance with a lender's, on the comparison rate and the drive away price.
- Pre-approval lets you negotiate like a cash buyer.
Why new cars get lower rates
A new car is worth more as security and is easy for a lender to value, so new car loans usually carry the lender's lowest car loan rates. Some lenders count a car as new only if it's under a year or two old, such as a demonstrator.
Carmakers' finance companies sometimes advertise very low rates on particular new models. Compare the drive-away price too, as a cheap rate can come with less room to negotiate on price.
Pros
- Lower rates. The car secures the loan, so lenders charge less than for unsecured loans.
- Higher limits. You can usually borrow the full price of the car.
- Long terms. Up to seven years, which keeps each repayment lower.
Cons
- The car is at stake. The lender can repossess it if you can't keep up.
- Rules on the car. Many lenders limit how old it can be and need comprehensive insurance.
- A new car loses value quickly, so early on you can owe more than it's worth.
Alternatives
- Dealer or carmaker finance. Carmakers sometimes offer very low rates on particular models, so compare the drive away price and the comparison rate.
- A novated lease, if your employer offers salary packaging. Payments come from your pre-tax pay, which can save tax, especially on electric cars.
- An unsecured personal loan. Nothing is secured against the car, so you can buy any car, at any age, though the rate is usually higher.
How to apply
You can apply for a new car loan before you've chosen the car. Pre-approval tells you your budget and lets you bargain like a cash buyer.
- Get pre-approval. Many lenders approve you for an amount first, so you know what you can spend before you shop.
- Check your rate. Some lenders give a quote with a soft check, which doesn't show as a credit enquiry.
- Have the car's details ready. Lenders need the make, model, year, VIN and the seller's details before they pay out.
- Compare the drive away price, not just the rate. A low rate can come with a higher price on the car.
- Insure the car. Lenders usually need comprehensive insurance on a car that secures the loan.
What to check on a car loan
Look at the comparison rate as well as the interest rate. The comparison rate adds the lender's standard fees to the interest rate for an example loan, so it shows the cost of two loans on the same footing.
- Whether there's a balloon payment, a lump sum left to pay at the end that lowers your regular repayments.
- Any limit on the car's age, either when you buy it or when the loan ends.
- Whether you can make extra repayments or pay the loan off early, and what that costs.
- Whether the lender pays the dealer or private seller directly.