What factors affect your interest rate when borrowing for a car

What Affects Your Car Loan Interest Rate?

When applying for car finance, many people are surprised to learn that interest rates aren’t one-size-fits-all. At iLoans, we often get asked why rates differ from one borrower to another — and the answer comes down to several key factors lenders consider when assessing a car loan application.

Understanding these factors can help you make informed decisions before applying and ensure the loan you choose suits your financial situation.

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1. Your Credit History and Credit Score

Your credit history plays a significant role in determining the interest rate you may be offered.

Lenders generally review:

• Your repayment history

• Any defaults or missed payments

• Current debts and credit enquiries

• Your overall credit score

A stronger credit profile may indicate lower risk to a lender, which can result in more competitive interest rates. A lower or limited credit history may reduce available options or result in higher rates.

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2. Age of the Vehicle (Asset Age)

The age of the car you’re purchasing can directly impact the interest rate.

In most cases:

• New or near-new vehicles may attract lower interest rates

• Older vehicles may attract higher interest rates

This is because newer vehicles tend to retain value better, which reduces the lender’s risk. Some lenders also have restrictions on the maximum age of the vehicle at the end of the loan term.

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3. Asset-Backed Car Loans

Most car loans are asset-backed, meaning the vehicle itself is used as security for the loan.

• Asset-backed loans generally offer lower interest rates than unsecured loans

• The lender can rely on the vehicle as security, which reduces lending risk

At iLoans, we help clients understand whether an asset-backed loan structure is appropriate for their circumstances.

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4. Loan Amount and Loan Term

The amount you borrow and how long you borrow it for can also influence your interest rate.

• Longer loan terms may result in higher interest rates

• Shorter loan terms may reduce risk but increase repayments

It’s important to consider the total cost of the loan, not just the interest rate.

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5. Employment Type and Income Stability

Lenders assess your ability to repay the loan by reviewing your income and employment situation.

This may include:

• Employment type (full-time, part-time, casual, or self-employed)

• Length of employment or time in industry

• Income consistency

Stable and verifiable income may improve lending options, though this varies between lenders.

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6. Deposit or Trade-In

A deposit or trade-in can reduce the loan amount and the lender’s exposure.

A lower loan-to-value ratio (LVR) may improve the overall application and, in some cases, result in more competitive interest rates. This is not guaranteed and depends on lender criteria.

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7. Lender Policies and Market Conditions

Interest rates are also influenced by:

• Current market conditions

• Lender funding costs

• Individual lender credit policies

These factors change over time and are outside the borrower’s control.

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How iLoans Can Help

At www.iloans.com.au, we compare a range of lenders to help you understand your options and find a car loan that suits your individual circumstances. We focus on clear explanations, transparent lending, and helping you understand the true cost of borrowing.

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Important Information:
This information is general in nature and does not take into account your objectives, financial situation, or needs. Credit approval is subject to lender assessment and eligibility criteria. Interest rates, fees, and loan terms vary between lenders.

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