Car loans can involve numerous financial factors to consider. If you’ve never applied for a car loan before, it can be confusing to understand what they mean and how to decide on the best car loan option for you.
It’s important to first do your research and compare the rates offered by various lenders to find what suits your needs and budget, and a car loan comparison rate calculator is a good place to start.
What is a comparison rate?
A car loan comparison rate is the interest rate of a car loan plus most fees and charges, such as account keeping or administration fees, rolled into one figure and expressed as a percentage per year. This rate can be more useful than the standard interest rate when comparing lenders.
While the base interest rate can often be presented as a way to attract potential customers, as it is generally far lower than the comparison rate, the comparison rate can give you a clearer idea of how much your loan will cost.
The comparison rate includes all known fees and charges, which allows you to calculate your budget and get a more accurate estimate of how much you can expect to pay each month in repayments. Comparison rates are suited to fixed car loans, which most car loan products are. A fixed car loan sets the rates from the beginning, and the rate does not change for the duration of the loan period.
A comparison rate is commonly made up of three ongoing costs:
- The nominal or base interest rate
- Approval, establishment or other upfront fees, and
- Ongoing fees such as account keeping fees
The comparison rate that will determine how much you pay back in interest and fees depends on how much you intend to borrow, the term of the loan, repayment frequency, and the interest rate, upfront fees and ongoing charges.
A lender’s comparison rates can sometimes be represented in a comparison rate table or schedule. This may detail the various rates that apply to the lender’s products for different terms and loan amounts. You can directly compare these rates to another lender’s rates to determine which better suits your budget.
Comparison rates may not show you how much features of your car loan will cost. This is because many of these features are optional or transactional costs that only apply if you use them. Any fees that are used to maintain the loan, such as administrative fees, are counted towards the comparison rate.
Make sure to talk to your broker to ensure you understand what fees are considered transactional and what fees are included within the overall loan.
Various car loan comparison rates may be for different loan periods, amounts and include facilities such as balloon payments. To get the best car loan, make sure to compare loans with the same terms and amounts to ensure you get a clear comparison of how much you’ll be spending on repayments. For example, check whether the car loan is secured or unsecured, and only compare a secured car loan with a secured car loan to ensure an equal match-up.
Some car loans may give you the option to reduce your regular repayments by reserving a portion of the sum to be paid at the end of the loan term, which is called a balloon payment. The comparison rate is not affected by a balloon payment, as it is an ongoing cost.
Why you should use a car loan comparison rate calculator
Working out the best deal on a car loan does not need to be too challenging. A car loan calculator is a good tool to use to get a guide of the repayment costs and rates you may be able to get, or how much you may be able to borrow based on your budget.
A car loan calculator can provide you with an idea of the loan amount, interest rate, loan terms, repayment frequency and fees. Fees generally refers to any upfront fees, such as application or establishment fees, and some loans may also have maintenance fees, but these fees should all be included as part of the comparison rate.
A comparison rate provides you with a standard formula so you can compare two or more loans and get a complete picture of the cost of the loan. When you have the comparison rate, loan term, and the amount you want to borrow, you can better calculate your repayments using a car loan calculator. It will give you approximate repayment amounts, so you can determine whether the loan is within your budget.
A car loan comparison rate calculator provides you with the options you need to make comparisons between car loans you’re considering more accurately, making it easier for you to choose the best car loan for you.
It’s important to keep in mind that car loan calculators should be used as a guide only. They do not take into account factors such as your lending profile, circumstances or asset type, all of which will impact your car loan.
With so many options available, it can be hard to know what is the best car loan for you. While a car loan calculator can provide you with an initial guide, for more detailed information regarding your individual car loan, it’s always recommended to speak with a car finance expert.
Our car finance experts can also help you with car insurance and a new or used car finder to find the right vehicle for you. Contact 360 Finance Specialists today.