Fixed Rate Car Loans: Weighing the pros and cons

When searching for car loans, you may see “fixed rate car loans” pop up a few times. But what is it exactly? A fixed rate car loan is a type of vehicle finance where the interest rate does not change throughout the life of the loan, unlike a variable rate car loan.  

Having a fixed rate car loan means you’ll pay the same amount every month, fortnight, or week, regardless of outside market factors like changing cash rates. You don’t have to worry about rising rates or unpredictable monthly payments.  

Read on to learn about the pros and cons of fixed rate car loans and see if it’s the right fit for you.  

Advantages of a fixed rate car loan  

A fixed rate car loan is great for those looking for more stability. Here’s a quick overview of the benefits fixed rate car loans offer:  

Consistency makes it easier to plan  

A fixed repayment amount allows for easier planning. You don’t have to keep up with changing repayment amounts and can plan your budget with more certainty. Easily create budget plans in advance, as your fixed rate car loan repayments will be the same for the length of your loan term.  

Monitoring the repayment amount every month, fortnight, or week can make it harder to manage your finances. If you’re juggling multiple loans and bills, having a variable car loan with potentially changing repayments can be a hassle.  

You won’t be affected by rate increases  

The biggest downside of a variable rate car loan is that when interest rates rise, your car loan repayments will rise right along with them. If there’s a continuous increase in interest rates, it will reflect on your future repayment. This, in turn, will make your total repayment costs more expensive.   

With a fixed rate car loan, you don’t have to think about fluctuating interest rates. Your repayments are set for the duration of your loan. You don’t have to worry about the total cost becoming more expensive as cash rates change.  

The best time to get a fixed rate car loan is when interest rates are at their lowest. While shopping around, compare the interest rates previously to what they are now and look at market projections to figure out if it’s an opportune time to get a car loan.   

Lock in a low interest rate  

Fixed rate car loans are especially advantageous if you find one with significantly low rates. Even if interest rates increase over the loan term period, your loan won’t be affected. 

When shopping around for a car loan, pay close attention not just to the interest rates but to market forecasts, as well. This helps you get an idea of whether interest rates will rise or fall in the near future. 

Disadvantages of a fixed rate car loan  

Fixed rate car loans also have a few drawbacks that can outweigh the benefits. Here are the downsides to getting a fixed rate car loan:  

Inflexibility could cost you  

There is a lack of loan features and flexibility with fixed rate car loans. Usually, you’re not allowed to pay off your fixed rate car loan early without incurring a hefty fee. You also lose out on useful features that could lower the total interest cost of your loan, like redraw facilities. Some lenders also won’t allow borrowers to change their repayment frequencies.  

Suppose you receive a windfall or a promotion and want to put that towards paying off your fixed rate car loan, for example. In some cases, you may be fined early payment penalties or will not be allowed to make lump sum payments in addition to the established repayment amount.  

More difficult to lower your interest rate  

The main disadvantage of fixed rate car loans is that you can’t lower your interest rate unless you refinance. Even if interest rates in market drop significantly, you’ll still be stuck paying the higher rate. This means you could end up paying more on a fixed rate loan compared to a variable one.  

Although it is possible to lower your interest rate through a car loan refinance, the process can be time-consuming and expensive. Refinancing involves leaving your current loan and applying for a new one which typically involves exit fees, break fees, application fees, and additional expenses.  

Types of fixed rate car loans 

Take note that, fixed rate car loans aren’t all cut from the same cloth. In fact, there are different types of fixed rate car finance out there that are tailor-made for a specific vehicle purchase. Here are some of your secured finance options from loans.com.au:  

New car fixed rate loan  

A new car fixed rate loan could be ideal for those in the market for a brand new vehicle. This is one of the most popular types of car loans because it offers more flexibility and typically has much lower rates than car loans directly from the dealership.  

With a new car fixed rate loan, you’re not limited to buying what car is currently available at a certain dealership. You have the freedom to choose where and what car you can buy. It also gives you more room to negotiate with the dealership for a better deal.   

This fixed rate loan can also provide more opportunities to save because it usually has better loan features than the standard dealership loan.   

Used car fixed rate loan  

If you want to buy a second-hand vehicle, you can fund your purchase with a used car fixed rate loan. This loan can be used for dealership purchases or private sales, making it easier for buyers to find the best deal on their vehicle.  

Used car fixed rate loans can be especially beneficial for private sales. Sellers expect to be paid in full, and for buyers who don’t have enough funds on hand, this could mean losing out on their ideal car. With a used car loan, you can buy it now and pay it off over time.  

At loans.com.au, you can buy a used car that’s eight years old (or potentially older, depending on certain factors). For this type of car loan, the interest rates may vary depending on the age of the car you’re buying. Usually, the older the car, the higher the rates. You could use our car repayment calculator to see how different rates can affect the overall cost of your loan. 

Should you get a fixed rate car loan?  

Car loans with fixed interest rates are one of the most popular car finance options. However, just as with any loan, it comes with its own set of advantages and disadvantages. Whether this type of loan is right for you depends on your specific situation and your financial goals.  

Fixed rate car loans provide borrowers with more certainty and stability in their repayments. Since your repayment amount stays the same for the life of the loan, you can budget more easily. Consequently, these loans typically aren’t very flexible, making it difficult to manage if your financial situation changes.  

Factors to consider before applying for a car loan  

When choosing between a fixed rate car loan and variable rate car loan, here are a few things to keep in mind:  

• Your financial situation. The car loan you choose should match your needs. If you want to take advantage of early payments or redraw facilities, a variable loan may be right for you. Meanwhile, if you favour stable repayments more, a fixed rate car loan may be a better fit.  
• Loan terms and features. Understand what you’re allowed to do with a fixed rate car loan or variable car loan. Speak with a lending specialist and go through all your options carefully so you can find a car loan that works for you.  
• Cash rate and other market factors. Your loan’s interest rate will affect the overall cost of your loan. Before deciding on a variable or fixed rate loan, check out market forecasts to get a better idea of what interest rates could look like in the coming months. 

If you’re unsure about what type of car loan you need, you can always talk to our lending specialists. We know that finding the perfect loan can be overwhelming, so our team is more than happy to help. 

Tips on finding the right fixed rate car loan  

Here are a few things to keep in mind so you can have an easier time shopping around for a loan:  

• Know what kind of car you’re buying. With so many different types of fixed rate car loans to choose from, borrowers might get overwhelmed. The quickest way to narrow down your options is to figure out what vehicle you’re buying and go from there.  
• Pay attention to comparison rates. Finding the best deal on your car loan can be challenging. If you want to know the true cost of a loan (including interest and fees), always look at the comparison rate. The higher the comparison rate, the more expensive the loan.  
• Talk to the lender. The best way to learn more about a lender’s loan offerings is by speaking with a lending specialist. This is also a great way to know the lender’s car loan application process and more information about your car finance options. 

Ready to get a fixed rate car loan?  

Get in touch with loans.com.au! Our friendly lending specialists are more than happy to discuss your fixed rate car loan options. We’re here to help you find a car finance solution that fits your needs perfectly. Call 13 10 90 or schedule a call at your earliest convenience.  

If you’re ready to apply for a loan, check out our fixed rate car loans. You can also apply online today and get approval quickly! 

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