5 Things That Actually Affect Your Car Loan Interest Rate

Most people assume their credit score is the only thing that determines their car loan interest rate. While it's certainly important, it's far from the only factor lenders consider. Understanding all the variables gives you a real opportunity to secure a better rate — sometimes significantly better.

Here are the five factors that actually matter most when a lender prices your car loan.

1. Your Credit Score & Credit History

Let's start with the obvious one. In Australia, your credit score is generated by agencies like Equifax, Experian, and illion — and it's the first thing most lenders check. A score above 700 will generally unlock the most competitive rates. Below 500, and you're looking at specialist (higher rate) lenders.

But here's what many people don't know: it's not just the score. Lenders look at the details behind it — the type of defaults (utilities vs. credit card vs. mortgage), how old they are, whether they've been paid, and whether there's been recent improvement in behaviour. A broker can help you identify which lender is most likely to view your specific credit history favourably.

2. The Age & Type of Vehicle

Lenders treat the vehicle itself as security for the loan. Newer vehicles = lower risk = lower rate. A 2025 Toyota RAV4 is easy to value, easy to sell if you default, and unlikely to depreciate sharply in the short term. A 2010 Mitsubishi Lancer? Less so.

• New vehicles (0–2 years) attract the lowest rates
• Cars 2–5 years old are still competitive
• Vehicles 5+ years attract a higher rate premium
• Vehicles 10+ years at loan end are declined by many mainstream lenders

Luxury vehicles, classic cars, and grey imports can also complicate things — some lenders simply won't touch them, while others specialise in them.

3. Your Employment & Income Stability

Lenders want confidence that you'll make your repayments. That means they look closely at how stable and verifiable your income is.

Employment types and their impact:

• Full-time PAYG employed — easiest to verify, best rates
• Part-time / casual — acceptable, but lenders want 6–12 months history
• Self-employed / ABN holders — acceptable with 12–24 months of tax returns or BAS statements
• Centrelink recipients — specialist lenders available, higher rates apply

4. Your Loan-to-Value Ratio (LVR)

Your LVR is the percentage of the vehicle's value you're borrowing. If you're buying a $40,000 car and borrowing $36,000, your LVR is 90%. Higher LVR = higher lender risk = higher rate.

If you can put a deposit down — even 10–20% — you'll often access a meaningfully lower interest rate. For business purchasers using chattel mortgage, a balloon payment can serve a similar function by reducing the lender's risk exposure.

5. The Lender You Choose

This one surprises many people. Different lenders price risk differently. One lender might charge 8.5% for a self-employed applicant with a 620 credit score buying a used car. Another might offer the same applicant 6.9%. The loan product, the lender's risk appetite, and their current book composition all factor in.

This is precisely why using a broker who has access to 30+ lenders is so powerful. We know which lenders are competitive for which profiles — and we present your application in the best possible light to the right lender from day one.

How to Improve Your Rate Before Applying

• Check your credit file for errors (you can get a free report from Equifax, Experian, or illion)
• Avoid applying for multiple loans or credit cards in the months before your application
• Save a small deposit if possible — even 10% makes a meaningful difference
• Consider buying a slightly newer vehicle if the rate difference is significant
• Have your payslips, bank statements, and ID ready to speed up the process