Most Australians spend more time researching the car than the finance — but the loan terms can cost you thousands more than the purchase price difference between two vehicles. These questions will expose weak spots in any offer before you sign.
About the rate and cost
- What is the comparison rate, and which fees are included in it? The advertised interest rate doesn't tell the full story. The comparison rate folds in establishment fees and ongoing monthly fees, calculated on a standard $30,000 / 5-year basis. Ask for both numbers and work out the difference — a large gap signals high fees.
- What fees are not included in the comparison rate? Conditional fees (early exit, redraw, dishonour) don't appear in the comparison rate. Get a full list in writing.
- Can you give me a worked example of the total amount I'll repay over the full term? This is the simplest way to cut through rate jargon: principal + all interest + all fees = total cost of credit. Under the National Credit Code, lenders must provide this in the credit contract.
- Is this a fixed or variable rate? Fixed rates offer payment certainty but restrict flexibility. Variable rates may change if the RBA moves, but usually allow extra repayments and early payout without penalty.
About repayments and flexibility
- Can I make extra repayments, and is there a limit? Many fixed-rate car loans cap extra repayments or charge a fee for them. Variable and secured car loans from banks/credit unions are more flexible. Ask specifically whether extra repayments reduce the principal immediately or are held in a suspense account.
- Is there a redraw facility? If you overpay, can you access those funds later? Is there a fee per redraw, and a minimum redraw amount?
- Can I change my repayment frequency? Switching from monthly to fortnightly can reduce total interest (because you make the equivalent of one extra monthly payment per year). Ask if there's a fee to change.
- What happens if I miss a payment? Ask about the dishonour fee, the grace period before it's recorded as a missed payment, and the process for a payment holiday if your circumstances change.
About paying out early
- Can I pay out the loan early? Variable-rate loans almost always allow this. Fixed-rate loans often have break costs that can be substantial — ask for a formula or an example payout figure at the 2-year mark.
- How is the payout figure calculated? Ask whether it's the remaining principal only, or whether it includes a portion of unearned interest and the break cost. Request a sample payout statement.
- Is there a minimum loan period? Some products have a 12-month minimum before early payout is allowed without penalty.
About the balloon / residual
- Is the balloon payment optional? For consumer car loans, balloons are almost always optional. Including one lowers your repayment but leaves a lump sum at the end. Ask what your options are at maturity: pay in full, refinance, or trade in.
- Does the balloon accrue interest? Yes — you're paying interest on the full outstanding balance including the balloon amount throughout the term. Make sure you understand the total interest cost, not just the lower monthly payment.
- What is the market value likely to be at end of term? If the residual is set higher than the likely market value of the car, you'll be underwater at maturity. For a 5-year loan on a new vehicle, industry guides suggest 35–45% of the original price is a rough depreciation baseline.
About insurance and add-ons
- Is any insurance included or required? Lenders require comprehensive insurance for the life of a secured loan — this is your obligation, not optional. They may offer their own CCI (Consumer Credit Insurance), but this is almost always overpriced relative to standalone policies.
- Am I required to purchase any add-on products to qualify? GAP insurance, loan protection, and extended warranty are legitimate products, but they should never be a condition of approval. If they are, walk away or escalate to ASIC's MoneySmart.
Red flags in the answers
- Refusal to provide comparison rate or total amount repayable in writing.
- Vague answers about break costs ("it depends" without a formula).
- Pressure to decide before you've had the contract reviewed.
- Mandatory add-on products bundled with the loan approval.
Use Motorate's calculator to model the numbers before you sit down with a lender — knowing the repayment and total interest for your scenario means you can immediately test whether what they're quoting is competitive.