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How Are Car Loan Interest Rates Determined?

Each lender will determine how interest rates are applied a little differently, and this is why it can be a good idea to engage in the services of a professional finance broker to help assist in getting you the best deal for your circumstances.

Below are some of the key indicators that lenders will use.

New Or Used Vehicle

Some financiers will charge a slightly higher interest rate for used cars and some financiers may increase their interest rates on older used cars too.

Loan Term

Depending on how long you want to take your loan over, this could have an impact on what interest rate would apply to your car loan.

Loan Type

Some lenders may give an interest rate discount if the loan type is a business use loan, like a Chattel Mortgage, CHP or Finance Lease.


Can be referred to as LTV or LVR, so depending on the market value of your car and how much you apply to borrow against it, can change what interest rate you would get for your car loan. Usually trade equity or deposit can bring down the LVR, which can at times give you a better interest rate discount. This will not always apply by putting in equity, as it could bring your borrow amount below thresholds for certain lenders that may adjust their rates based on borrow amount.

Borrow Amount

The more you borrow, the more interest payable, so some lenders may reduce your interest rate depending on the size of your loan.

Asset Position

The borrower’s asset position can give certain borrowers a discount, as some lenders will target strong applicants and reward them with discounted interest rates to earn their business. These borrowers’ assets would usually be real property and cash savings is also another good scorer.

Borrowing History

Previous similar lends that can be checked can assist in achieving better car loan interest rates, as if you have demonstrated good loan conduct in the past, the lender’s will want your business more than someone with no history.

Credit File

A lot of people don’t understand the importance of not applying too many lenders in search of the best loan, as this created excessive activity on your credit file in the eyes of the lenders, and they become more dubious to even approve your loan, let alone give you the best deal. It also is important that you have no adverse credit history on your file too, as this is one of the major key indicators in regards to assessing what interest rates would apply to you.


If you move around a lot in your employment and residence, the lender may deem you more of a risk, as they may feel your income is not so stable and if you move a lot, you could be hard to find if they were trying to contact you.


Of course, this will come into play depending on who is arranging your car loan for you. Just be aware of all the factors, and do not apply them everywhere in your negotiations, as this will most likely give an overall negative result.