Written by , updated on June 30th, 2023
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Car loans are a great way to help borrowers bring their ideal vehicle within their reach, even if they don’t have the savings to pay for it upfront. Because of the extended time it takes to repay a car loan, it’s important to ensure you have access to the lowest rates on offer. Fortunately, you can do just that by applying with Savvy and selecting from a variety of low interest car loans.
There are many ways to go about locking in the lowest car loan interest rates, so you should always be mindful of these when approaching the car loan application process. Some of the ways you can go about securing the lowest car finance interest rates include:
Show a positive credit history
The better your credit history, the more likely you are to be approved for the cheapest rates on car loans. This is because a high credit score indicates to a lender that you’re a responsible borrower who can be entrusted with significant loan debt and has the discipline to repay it on time and in full. Car loan financiers view applications through the lens of risk: a lower credit score, in theory, poses a greater risk of default than a high one, so they set their rates higher to compensate for that increased risk.
Maintain a stable income and permanent employment
Part of making sure your lender is confident in your ability to comfortably repay the loan across your term is showing that you aren’t at risk of losing your job and running out of funds. Remaining in the same position for upwards of three to six months prior to your application and completing your probationary period will benefit you significantly, particularly if you’re full-time or permanent part-time. Additionally, receiving a consistent, comfortable income which is enough to support your repayments on top of your regular expenses will boost your chances of approval for the lowest car finance rates.
Choose a brand-new car
Because car loans utilise the vehicle you buy as security, your rate will be lowered the newer it is. This all comes down to potential resale value: brand-new cars and those less than three years old at the point of purchase are more valuable and less likely to fail for whatever reason than an older car. Lenders always prefer vehicles in this zero- to three-year age bracket, so selecting from this range is likely to result in a lower rate (albeit not substantially lower than a used car in good condition).
Opt for a longer repayment term
In most cases, the lowest interest rates are offered by lenders to borrowers who select a longer repayment term. You can decide on whether to repay your car loan debt over a term of one to seven years, with the longer terms generating greater overall interest for the lender. Because of this, interest rates on shorter terms are generally higher. It’s important to consider which is best for you and what term length ensures the balance between the most manageable repayments and the lowest car loan interest rates.
Own property
Lenders prefer borrowers who are asset-backed, meaning they own a significant asset (most commonly property) and have repaid it in full or are in the process of repaying it. If you own your home, your chances of locking in the lowest available car finance interest rates will be boosted by some margin. If you don’t own a home, you may also help your chances of a low interest rate by showing evidence of substantial savings, known as “cash at bank”, which can have the same effect as property (albeit not as effective).
Have a similar loan repaid previously
Finally, showing your lender that you’ve repaid a similar car or personal loan in the last few months or years is verifiable proof that you’re capable of taking on the responsibility of repaying a significant loan debt on time and in full. Lenders will reward borrowers who can prove that they pose little risk by lowering interest rates, which will help you save a substantial amount over the life of your loan. This is especially relevant for borrowers buying their first car, as they won’t be able to draw on any successful car loan repayment history but can show their discipline through past personal loans or credit card repayments, among other areas.
Perhaps the most important thing above all else when it comes to securing low (or the lowest) car finance interest rates is to compare options in the market. By taking the time to consider a greater number of offers, you can inform yourself of the options currently available and, as a result, make a more educated decision on which is the cheapest and best for you. You can do this yourself, surveying the market by looking into various lenders and their offers, but it’s not always the most time-effective way to go about it.
Savvy takes all the guesswork out of picking the car loan with the lowest interest rate. Once we receive your application, one of our expert consultants will get to work comparing an array of loans from our partnered lenders to find the cheapest on offer for you. They’ll consider your personal preferences for your car loan, such as car age restrictions and features such as flexible repayment schedules, and return to you with the best car loan offer available. By completing your application with Savvy, you can position yourself most effectively to capitalise on low interest rates.
The less you borrow, the less interest you’ll have to pay overall. Therefore, minimising the size of your loan will help you cut down on the cost of your loan. You can do this by choosing a cheaper car or by simply paying for a portion of the vehicle’s purchase with your own savings as a deposit.
Although longer terms often come with lower rates, shorter terms will result in a lower overall interest bill, even if the rates are slightly higher. The sooner you pay off your loan, the less interest you’ll pay (due to the way it’s calculated), so you’re better off selecting a shorter loan where possible.
It’s not just interest that you have to consider when it comes to the cost of your car loan: you should always pay close attention to the fees which are charged. With monthly fees of up to $20 and application fees up to around $600, finding a deal with a low comparison rate can make a big difference.
If you can’t quite lock in the interest rate you were looking for, you can always pay down your loan for a couple of years and look to refinance to a better interest rate. This is especially the case if your credit score wasn’t amazing at the start of your car loan, as making repayments will help you qualify for a better rate next time.
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