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How to Reduce Your Car Loan Repayments

Apr 13, 2022 | Insights

Upgrading or buying a brand new car can be one of life’s little highlights, which often requires a loan to help get you there.

In today’s car market, committing to car loan repayments can sometimes feel like too much of a leap — thankfully, there are small steps you can take to help reduce your car loan repayments, where possible.

Whether you’re looking at ways to fit car loan repayments into your budget, or just want to own your car sooner, keep reading as we uncover some of the ways you can drive your car loan repayments down.

Decide on the right personal loan lender for you

If you’re a self-employed person, receive government assistance payments or have experienced a poor credit history, it’s important to seek a car loan through a lender who understands your unique financial situation and personal circumstances.

For most lenders, someone with questionable creditworthiness increases the risk of lending money out and consequently, lenders will often try to mitigate that risk by increasing fees and charges or applying the maximum interest rate. This can amount to unaffordable personal loan repayments.

At Finance One, we understand that things don’t always go to plan, and that your current credit score may not reflect your current situation. We are proud to give a little grace when it comes to our lending criteria and will be happy to do all we can to help find you the perfect vehicle finance solution, tailored to your needs.

Opt for a secured car loan

Regardless of whether you have a poor credit history or are just looking to lower your repayments, a secured loan provides your car loan lender more security over an unsecured loan, and can therefore mean a lower interest rate. Of course, lower interest rates usually mean lower repayments.

Car loans are one of the loans where you can offer the lender an asset as backup, in case you default on the loan and can’t pay it back. So take advantage of this win-win situation for both you and the lender, if you can!

Consider weekly repayments

Even if you get paid fortnightly, choosing to make weekly loan repayments can actually save you money on interest. Most car loans default to monthly repayments, so you may not even realise that you often have a choice over your repayment frequency.

Interest on car loans is typically calculated every day and then charged monthly, so without realising, you may be able to repay more of your interest more quickly by paying weekly. Of course, this will lower your loan amount more quickly too!

Top tip

Paying by direct debit can be a great way to ensure that you don’t miss a repayment. This can work to also help boost your credit score, as missed payments are now recorded on your credit file for two years.

Work on boosting your creditworthiness

Speaking of helping boost your credit score, working to improve your creditworthiness is one of the ways that you can help keep your personal loan commitments more affordable. This is because your car loan rate is typically lower, the more creditworthy you are. Repairing a bad credit history won’t happen overnight, but if you’re looking at personal loans, or even if it’s just one of your personal objectives to boost your chances for a loan down the track, a consistent approach is best. Some of the ways you can help to build or maintain your credit score are:

  • Only undergoing one credit assessment every six months or so. Too many applications in a short space of time can reflect negatively on your credit file.
  • Pay any existing accounts and loans, including utility bills, credit cards or personal loans, on time. Missed repayments can be registered on your credit file for two years.
  • Don’t have too many accounts or loans open at once. This means limiting how many credit products, such as loans or credits cards, you have at one time.
  • Review your credit file with a credit reporting company to make sure there is no misinformation or incorrectly recorded defaults.

Look at using a balloon payment

If you’ve never heard of a balloon payment before; a balloon payment is a small lump sum payment that you can opt to apply to your loan once the loan draws to an end. For example, say you would like to borrow $20,000 over five years. You may opt to have a $5,000 balloon payment, which means that when the five years are up, you are responsible for making a $5,000 lump sum payment to finalise the loan. This can work in your favour, as you are borrowing $20,000. However, you will only be paying interest on $15,000, effectively reducing your regular loan commitments. (Of course, it’s important to ensure that you’re able to pay the balloon payment once it falls due!)  

Put down a higher initial deposit

Most car dealerships will require some level of deposit to secure your car, but even if you’re buying privately, putting some funds of your own towards the purchase of your vehicle can reduce your personal loan amount. Reducing loan amounts is one of the best ways to pay less interest and therefore lower your personal loan repayments.  

Extend out your loan term

Any loan, especially unsecured loans, can feel daunting to commit to long term. What many people don’t realise is that you can have a better chance of meeting the approval criteria for your new personal loan if you opt for a longer loan term — but this also works to reduce the regular payments. Be mindful that for a variable rate loan, the interest rate may go up or down over a long period of time.  

Do your loan homework and use a car loan repayment calculator

Going for a car loan does require some homework, especially if your situation isn’t as straightforward as others. Using a car loan calculator is a great place to start, to get an idea of what your estimated repayments might be. Many people also like to browse comparison rate websites. However, there are some downfalls in doing this, particularly if you’re self-employed, on government assistance benefits or have poor credit. Comparison rates are fantastic at showing the true cost of a loan, but they don’t show what lending criteria apply to each individual lender. Therefore, the estimated total costs may be inaccurate for your own circumstances. Some of the considerations to make are:
  • Are you eligible for fee waivers (this can reduce the total cost of the loan)?
  • What is the advertised interest rate, and will that interest rate be applicable to you?
  • Are there any early repayment fees or redraw fees?
  • For secured loans, will you require a fully comprehensive insurance policy on the motor vehicle before you drive it away?
  • Looking at the full disclosure documents to search for any hidden fees or hidden costs. It’s important to remember to look for all the details before you sign your loan application.
  • Are fixed rate loans the best option, or is a variable rate going to suit you better?
  • Different loan terms and amounts will result in different comparison rates.
Comparison rates and a car loan calculator are great starting points. However, they do not take your personal situation into account.  

At Finance One, we can give you more than the comparison rate examples shown

We are happy to walk you through the full credit criteria to understand the applicable interest rate ranges and the details that may be relevant to your loan. We’ll even look to apply fees and cost savings where possible to help make your loan more affordable.

If you’ve used our repayment calculator and would like to understand what interest rate may apply to you, contact us today to find out more.

Apply for a car loan

Disclaimer: The information above is of a general nature only and does not consider your personal objectives, financial situation or particular needs. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your particular circumstances. We do not accept responsibility for any loss arising from the use of, or reliance on, the information.

All loan applications are subject to normal lending criteria. Fees and charges are payable. Terms and conditions apply.


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Makala Elliott

Makala is the Marketing Manager at Finance One. She has worked in the Finance and Lending industry for over 10 years, gathering a wealth of experience. She is passionate about helping Australians get back on track with their finances by passing on her knowledge.

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