Fixed vs variable rate car loans

Newsroom

Fixed vs variable rate car loans

Oxcel Finance
June 9, 2022

While most car loans are fixed-rate products, there are also options for variable loans as well.

Deciding between a fixed or variable car loan is a matter of weighing up the pros and cons of each and seeing which is more suited to your situation.

Fixed

One of the main advantages of a fixed-rate car loan is the fact you know what your costs are going to look like every month and can budget accordingly.

If cash rates move, your car loan won’t be impacted so you can have confidence that you will be able to afford any repayments – assuming you’re staying within your household budget. However, it is worth considering that if rates fall, your current interest rate will be locked in so there won’t be any benefit.

The main downside of a fixed rate car loan is they typically don’t allow you to pay off the loan early. On top of this, there is likely going to be charges for any additional repayments you might make. However, all lenders and loan products are slightly different so it’s always worth speaking to a broker so they can compare which fixed-rate product might be suitable for your personal circumstances.

Depending on the current interest rate environment, fixed-rate loan products could have higher interest rates than what is on offer for a variable product, as lenders will need to protect their margins.

Variable

While less common, it is also possible to get a variable-rate car loan, which means the interest rate that you’re paying will fluctuate with market conditions.

That could mean if rates fall, you’ll be in a position to save money on your interest repayments. On the flip side, if interest rates start rising, then you will be in a position where your monthly repayments will likely go up.

The main benefit of a variable loan is that it is flexible. If you want to pay off your car early or if you want to make additional repayments, that is normally something you can do without the extra costs and fees that come along with a fixed-rate loan.

Depending on the interest rate environment, there can be attractive deals on variable loan products, but again, it’s always worth discussing your personal circumstances with your mortgage broker.

At the end of the day, the decision around variable versus fixed really comes down to what you want and whether you value the flexibility of a variable loan or the clarity that comes with having a fixed rate and knowing what your repayments are going to be.