What is an Average Interest Rate on a Car Loan?

Learn more on how car loan interest rate works and average rates in Australia.
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, updated on July 24th, 2023       

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The average interest rate on car loans

There are many advertised interest rates, but keep in mind that they’re designed to entice customers so it tends to be a tad low. When you walk in to a dealer, you get surprised that there’s more than meets the eye.

Typically, the average interest rate on car loans is set at almost 5% to a whopping 17%. So, what’s the most relevant rate for you? A good way to know is to line it up with your prevailing credit score. Ideally, the higher the credit score and the newer the car, the better. Your home ownership and strong employment background (3 years or more for short term casual) would also establish your capacity to pay. The purpose of the car (business or personal use) would also contribute to your chances of a good interest rate with possibly cheaper repayments.

Some loans have low interest rates but may have caveats that cause you to pay more over the years and vice versa. It’s crucial to know what the best possible interest rate suits your unique situation.

Your credit score and average interest rates

If you don’t know your credit score, chances are, you’re one of 2.7 million Aussies who are too afraid to ask. Knowing your credit score allows you to fix your credit history if necessary. Equifax offers a credit score band for you to gain some insight on where you are if you’re looking at an interest rate on a car loan:

  • Excellent – 833 – 1,200
  • Very good – 726 – 832
  • Good – 622 – 725
  • Average – 510 – 621
  • Below average to average – 0 – 509

Good credit scores of 600 and above tend to have rates between 5% to 10% while 0 to 509 tend to have 10% – 20% interest rate p.a.

See how savvy helps your compare car loan rates

Some ways to get a better interest rate on your car loan

Learn more about how car loan interest rate works

How interest rates vary for new and used cars?

If you’re concerned with a heavy price tag of a brand new car, you might want to consider buying a near-new or demo car which still gives you competitive interest rates than a brand new car and works just as fine as a new car.

Watching interest rates through the life of the loan

You might think that getting a car loan with long term repayments is more affordable because of smaller repayments. Loan terms are funny this way. They tend to have higher rates if generally within 3 years. They’re at their cheapest at 5 years and will tend to swell when they ripen at 7 years. If you do the Math, you could end up paying more as opposed to paying with a bit of a high interest rate in a shorter period. Here’s what could happen if you have a loan amount of $35,000.

Loan term Monthly repayments Total interest paid at 12% Total amount paid
7 years
5 years
3 years

The real score on 0% car loans

That 0% interest rate is tempting, alright. But it may come with some caveats. Oftentimes, 0% rates are only applicable at the beginning of the term and not throughout the life of your loan. On top of that, such an offer tends to hit you with higher monthly repayments because you’re paying the full price of the car’s value, compromising your negotiation power. Another set of caveats is that 0% interests typically apply to certain car makes and models only which apparently limits your buying power.

You should also read the fine print first before signing up with any dealer. If you feel like you need a guide, contact any of our dedicated finance specialists to help you out.

How do I know I have a good car loan interest rate?

Having the lowest possible interest rate may not be the “best” interest rate you can find on the market. This may seem confusing, but many car loans are marketed with base interest rates that do not include most fees and charges you’ll pay on top of your principal (the amount owed) and the interest (what the lender charges in exchange for fronting you a lump sum to buy a vehicle.) Other interest rates may be lower but require you to put up your vehicle as security or collateral. This is known as secured car loan. The other type of loan, an unsecured loan, is not tied to the value of the car. These loans are generally less competitive in comparison with secured car loans.

Other factors that influence the interest rate a lender will offer you is your credit score, your financial situation, and the type of car you want to finance. Having a low credit score means a higher risk, which means higher than normal interest rates. You may want to obtain your credit history first, to correct mistakes. You should also limit the amount of applications for credit, as this can negatively affect your credit score.

Finding lower risk options such as new cars can decrease your interest rate. Financing risky vehicles like older cars can increase your rate. The key is to strike the best balance that suits your financial situation. Consulting a broker, who has access to many different lenders, may be able to help you find a car loan with an interest rate that is most competitive for you.

What are the differences between fixed and variable interest rates?

Here is a working example of two car loans: one with a car loan broker like Savvy and with dealer finance. The dealer is offering a car for $30,000. The dealer offers you a base interest rate of 4%p.a. and a balloon payment of 30% over five years. Your broker has found a loan with a comparison rate of 4.5% over the same period.

Fixed interest rate


Easier to budget

Consistent repayments over the life of the loan



Can work out cheaper if the market rates go down

No penalties on lump sum or extra repayments

Option to pay out the loan early

Variable Interest rate


Easier to budget

Consistent repayments over the life of the loan



Can work out cheaper if the market rates go down

No penalties on lump sum or extra repayments

Option to pay out the loan early

Frequently asked questions on car loan interest rates

How much can I borrow?

Your loan amount you may be able to borrow is best determined based on your employment and credit history, among other factors. A car loan pre-approval would also be great to know how much you could be approved for. Savvy can help you possibly get a loan amount from $5,000 to $100,000 or even up to $100% of the car’s purchase value. Get in touch with us to know more.

What’s an interest rate?

Its the percentage that a lender charges you on top of the loan amount, usually expressed per annum.

What is a secured car loan?

A type of loan where the car you purchased is used as collateral. You and the lender agree that if the loan remains unpaid, the car will be repossessed to reclaim losses for non-repayment.

What is a car loan pre-approval?

It’s a free enquiry on what possible loan amount you could apply for. The amount is not final nor legally binding for you or the lender.

If I have bad credit, can I still get a car loan?

There’s a possibility and it’s worth a try. Savvy is connected with more than 25 lenders that could find the one that matches you.

Are online calculators true and accurate?

Online calculators give you a general overview of what your monthly repayments could be, based on the numbers you key in. They are not the final numbers since there are other factors that affect your monthly repayments such as application or ongoing fees. Speaking to a finance expert would be better to get you a more accurate reading on your financial standing and possible repayments.

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