Car loans

Shopping around for the best car loan can save you thousands in interest and fees. 

A car loan is a personal loan for a new or used car. You have to repay the loan and interest over a fixed term, usually between one and seven years.

Get the best car loan for you

Most people shop around before they choose a car. You should also shop around before you choose a car loan. It can save you thousands in interest and help you pay off your car faster.

Compare loans before visiting a car dealer

It's important to look at loans before you go to a car dealership. You'll be able to negotiate better, as you'll know:

• exactly how much you can spend
• the best interest rate you can get
• how much your repayments will be

Fixed or variable interest rate

With a fixed interest rate, the interest rate and your car loan repayments are fixed and won't change. You'll know exactly how much will come out of your bank account for repayments each month. Car dealerships usually offer fixed rate loans.

With a variable interest rate, your car loan repayments can change if interest rates change. If interest rates rise, your repayments will be higher. If interest rates fall, your repayments will go down.

Variable rate car loans usually don't have an early exit fee. This might be better if you're planning to make extra repayments and pay the car loan back early.

Secured or unsecured loans

Most car loans are secured. Your car will typically be the security for the loan. If you don't pay the loan back on time, the lender can repossess your car and sell it.

With an unsecured loan, you don't have to provide your car as security. But the interest rate will be higher and you won't be able to borrow as much. Unsecured loans are mainly for used cars.

Beware of balloon payments

Some car loans offer a ‘balloon payment’ (also called a residual payment). This option means you pay off part of the loan as regular repayments, and then pay the final amount as a lump sum (this is the balloon payment) at the end of the loan.

This may look like a good deal as your monthly payments will be smaller. But you'll have to repay the lump sum with interest, so the total cost of the loan is higher.

If you choose a balloon payment, you'll need to be able to repay the lump sum plus interest when it falls due. Otherwise, you could end up needing another loan to pay the lump sum and interest.

Compare car loans

Compare loans before you meet the seller. Find out what you can spend and how much your repayments will be.

Compare these features:

Cover your other car costs

When you buy a car there are other costs you need to think about such as:

• stamp duty
• registration
• car insurance
• running costs, like petrol, maintenance and servicing

Some lenders offer loans that cover some of these costs as well as the car. It's better to pay for these other costs up-front if you can — your loan will be smaller and you'll save on interest.