1. Insights
  2.  → What To Choose Between Fixed & Variable Rate Car Loans

What To Choose Between Fixed & Variable Rate Car Loans

Dec 14, 2023 | Insights

Choosing a car can be difficult, but deciding between a fixed or variable interest rate Car Loan can be even trickier. There’s a lot to consider and a lot of financial jargon that can drive you to confusion, particularly if you’re going for your first Car Loan.

Let us help guide you down your Car Loan path by explaining the difference between a fixed rate loan and variable rate Car Loans, as well as what each may mean for you.


Variable vs fixed Car Loan: The difference between a fixed interest rate loan and variable rate Car Loan

As the name suggests, fixed rate Car Loans, have an interest rate that is fixed at the time of your application, whereas a variable Car Loan have an interest rate that will varies over the course of the loan, based on changes to the target cash rate set by the Reserve Bank of Australia (RBA).


Variable Interest Rate Car Loan


  • More likely to be able to make additional repayments, or refinance the loan without penalty.
  • Your interest rate (and regular repayments) may decrease depending on interest rate movements.
  • Generally more flexibility than fixed interest rate loans.


  • If the RBA raises the target cash rate and interest rates rise, your interest rate (as well as your regular loan repayments) may increase.
  • Variable interest rates are often applied at the lenders discretion, which means that even if the target cash rate falls, the lender may not pass the rate reduction onto you.


Fixed Interest Rate Car Loan


  • More certainty over what your repayments are going to be every month.
  • Your interest rate won’t increase over the life of the loan, even if the RBA puts the cash rate up.


  • Fixed interest rate loans are often inflexible, meaning you may not be able to change your repayment amount, pay the loan out before it’s due or refinance the loan, without incurring penalty fees.
  • If interest rates fall, the reduction won’t be passed on, as your rate is fixed for the life of the loan.

Let’s make it happen!

Apply For a Car Loan

At Finance One, we take a personal approach when it comes to assessing your application

We look at your full situation and may be able to help out even if you have a low credit score, bad credit history or if you don’t quite fit the mould for the traditional lending criteria.Apply Online Now

How do I choose between a fixed vs variable interest rate Car Loan?

When it comes to choosing between fixed and variable interest rates , there is no one-size fits all solution. This is because your financial situation, both now and in the future, will differ from that of the majority of people. Knowing how a variable or fixed interest rate may affect you is the first step in deciding which interest rate option to choose for your next Car Loan.


Is your income likely to increase over the loan term?

When you take out a Car Loan, you are making a commitment that could last or up to seven years! Think about whether you might want to contribute more to the loan in order to pay it off faster if your income is expected to increase during that time.

The majority of fixed loans either prohibit early repayment or impose early repayment fees. Variable rate Car Loans, on the other hand, often will allow you to increase your Car Loan repayments, or make additional repayments without penalty.

All Finance One customers can make extra repayments across or increase their repayment amount at any time, without penalty.

Do you prefer predictability?

Setting a budget and sticking to it is easier when you know exactly what your expenses will be. A fixed rate Car Loan can give you peace of mind about your loan repayments because they will remain constant for the full duration of your loan. Even if the RBA changes the cash rate (which influences interest rates), you will continue to pay the agreed-upon interest rate at the time of your loan commencement.

 What are the other fees involved?

The type of interest rate shouldn’t be the sole determining factor when selecting the best Car Loan for you. A vehicle purchase entails numerous expenses, including ongoing fees that will be applicable to your loan. Depending on the credit provider or lender, these could include annual fees, repayment frequency change fees, or loan maintenance fees.

Comparing Car Loans

The majority of Car Loans offered by car dealerships are fixed rate loans, which may not be the best Car Loan option for everyone. Even if you’re getting a new Car Loan, it’s a good idea to shop around before signing on the dotted line.

Many people compare loans using comparison websites which are beneficial because they use comparison to show the true cost of a particular product based on the loan amount.

What the comparison rate fails to show is:

  • The lending criteria
    If you’ve never had a personal loan or a credit card before, then Car Loan offers can be misleading, as you won’t have a credit history, and therefore may be declined by certain lenders.
  • Does the lender offer balloon payments?
    A balloon payment is a lump sum payment at the end of your loan term which helps reduce the interest you’re charged and can lower your Car Loan repayments.
  • Are early repayments available?
    Even if you’re not planning on paying out the loan before its due to be repaid, refinancing your Car Loan is technically paying it out, which means you may be stuck, unable to refinance, or being heavily penalised if you do.
  • Lower interest rates don’t always apply
    Advertising interest rates can be troublesome in that the interest rate you pay can vary greatly depending on the strength of your loan application, including your creditworthiness, income, loan amount, loan term and personal situation.

How to know what the best loan option is

Looking at all of your loan options, knowing what’s important to you, and speaking with a lender that will take your full situation into account is the most sensible way to find out the most appropriate loan option for you.

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.

Normal lending criteria apply. Fees and charges are payable. Terms and conditions apply.

Finance One means:

Fin One Pty Ltd ABN: 80 139 719 903  |  ACL: 387528

Finance One Commercial Pty Ltd ABN: 18 634 900 548

    Top Tip

    You can often access lower interest rates by opting for a secured loan over an unsecured Car Loan. Unsecured loans bring with them more risk to the lender, so if you’re taking out a personal loan for a new or used car, consider using your car as security.

    Apply Online Now

    Share this article



    Finance One

    Related articles

    Say HELLO to our new logo!

    Say HELLO to our new logo

    We are proud to announce that after 11 years, Finance One has a new look. We assure you we are the same friendly, compassionate team striving to help everyday Australians with finance, even if they have experienced a poor credit history.While we...


    Finance One Turns 10

    Finance One is celebrating 10 years in business in 2020. While the business has grown to service close to 14,000 clients, the Finance One motto remains the same - to empower people through personal finance.Specialising in a compassionate...

    covid 19 and my loan faq

    COVID-19 and My Loan FAQs

    We have compiled some responses to questions you may have in respect to your loan with Finance One during this time of uncertainty. We are here to help you work through this time. On 11 March 2020, the World Health Organisation declared the...