If you don't understand which lenders are offering the best loan rates today, it pays to have someone in your corner helping you make this major financial decision. When comparing loans, three of the most important things to check are the interest rate, loan duration, and any additional fees charged by the lender.
The interest charged on your loan is essentially the cost of borrowing money from the lender, and a lower rate is generally favourable. However, this depends on the duration of the loan. Most of our customers tend to choose between five and seven year loan terms.
We've used our car loan repayment calculator for this example; let us say you are seeking a car loan for $20,000, and you have been presented with two loan options. The first is a five year car loan at 6.75%, and the second is a seven year car loan at 5.5%.
You might immediately assume that the lower interest rate is the best choice - but let us look at how the difference in loan duration can affect the amount of interest you will pay. If you choose the 5.5% interest rate over seven years, you will be making weekly repayments of $66.23 and a total of $4,106.88 in interest over the life of the loan.
However, if you select the higher interest rate of 6.75% over a five year term, you will repay $90.68 each week, with a total of $3,577.34 in interest - saving you $529.54 in interest and having you own your car 2 years earlier. Your decision may then come down to your ability to repay the higher repayment amount each week to take advantage of this saving of time and money.
Finally, remember to consider any additional fees, from application and loan establishment fees to administration and extra repayment charges. These can quickly add up and may even negate any savings you may have made by choosing a car loan with a higher rate but lower fees.
To avoid this, check the comparison rate for each loan you consider - this indicates the true cost of the loan by including both the interest rate, and any additional fees.