Variable Rate Car Loans

Keep your repayments open to capitalise on interest rate falls with a variable rate car loan through Savvy.

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, updated on April 16th, 2024       

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Looking for a car loan with a bit of flexibility? You might’ve heard the term “variable rate car loan” in your travels when surveying the market, but it’s important to understand what they are and how they work before you sign on the dotted line. That’s where Savvy can help you out.

We’re partnered with a wide and diverse range of lenders from all around Australia to help you find and compare offers more effectively. Whether you’re looking for car finance that allows you to take advantage of falling rates or simply want the freedom to pay it off early, get a quote with us today to get the ball rolling on your next car purchase!

What are variable rate car loans and how do they work?

A variable rate car loan comes with an interest rate that can fluctuate throughout the loan term. This means your monthly repayments may change depending on rate adjustments made by the lender.

For example, imagine you borrow $30,000 for a car loan with an initial variable interest rate of 7.50% p.a. The lender calculates your monthly repayment amount based on this initial rate. If the base rate increases in the future, your variable interest rate and monthly repayments could potentially go up. On the other hand, if the base rate decreases, your interest rate and repayments could go down.

The lender will typically notify you in writing of any adjustments to the interest rate and the corresponding changes to your monthly repayments.

What are the pros and cons of variable rate car loans?

Variable rate car loans can be an attractive option for borrowers seeking flexibility and potentially lower costs. However, it’s important to analyse both the benefits and drawbacks of this type of loan, which you can do here:


  • Potential for reduced payments if rates drop: if the base interest rate set by the lender goes down, your variable interest rate and consequently your monthly repayments could decrease. This can be beneficial in a falling interest rate environment.
  • Greater flexibility: some variable rate car loans offer more flexibility for features like additional repayments, allowing you to make extra contributions and pay off your loan ahead of schedule without being charged any fees to do so (subject to conditions).


  • Risk of rising interest rates: the biggest drawback of variable rate loans is the potential for interest rates to increase. This can lead to higher monthly repayments, potentially straining your budget.
  • Less predictability for budgeting: since repayments can fluctuate based on interest rate adjustments, it may not be as simple to set a fixed budget for your car loan over the long term.

How do I compare variable rate car loans?

There’s a wide range of areas to consider when comparing your car loan options. The main factors to consider include:

  • Interest rate: this is the most crucial factor. Compare the initial variable interest rate offered by different lenders. Remember, this rate can change.
  • Comparison rate: look at the comparison rate, which includes the interest rate and the key additional loan fees, giving you a more accurate idea of the true cost of the loan.
  • Fees: compare establishment fees, monthly account keeping fees and any potential early repayment penalties.
  • Loan term: consider the loan terms available with different lenders. While some will offer loans as short as one year and as long as seven, this may not always be the case, so consider the minimum and maximum car loan terms.
  • Minimum and maximum loan amount: ensure the lender offers a loan amount sufficient to finance your chosen car. Some may require minimum loan amounts beyond what you’re looking to borrow, such as $10,000, while others enforce borrowing caps, such as $100,000, which may not suit luxury car buyers.
  • Repayment flexibility: check if the loan allows for free additional repayments and whether any fees are charged in the event you pay off your loan ahead of schedule.
  • Other features: you may also look for further car loan features, such as balloon or residual payments and

When you apply for a car loan with Savvy, you can compare all these factors and more with the help of a friendly, trusted member of our consultant team.

How much will my variable rate loan cost?

The cost of your variable rate car loan will depend on a set of variables specific to you, your lender and the finance deal you choose. Some of these are:

  • Interest rate: obviously, the higher the rate, the more your loan will ultimately cost.
  • The size of your loan: larger loans will lead to greater overall costs, as interest is calculated based on the outstanding balance.
  • The length of your loan term: because interest is calculated on the outstanding balance, the longer you take to repay it, the more expensive it’ll be overall.
  • Whether additional payments are made: with extra payments, you can pay off your loan sooner and save on interest in the process.
  • Whether a balloon payment is added: a balloon or residual payment is like a deposit at the end of your loan. However, although it reduces your regular repayments, you’ll end up paying more interest.

The following table demonstrates how different interest rates and loan sizes can have an impact on the cost of your car loan repayments, with all calculations based on a five-year term with monthly repayments:

Loan size 7.00% p.a. 8.00% p.a. 9.00% p.a. 10.00% p.a.

Source: Fixed Rate Car Loans – Savvy

Should I choose a fixed or variable interest rate for my car loan?

In contrast to a variable rate car loan, fixed rates are locked in from the start of your repayment term and remain the same throughout your repayment period. This means that you won’t benefit from rate decreases but will be protected from increases.

Fixed rates are better for budgeting, as you’ll know exactly how much you’ll be paying each month and year, but are more likely to come with break costs if you decide to pay it off early.

Whether a fixed or variable rate car loan is best for you will come down to your preferences as a borrower. It’s important to understand how rate changes may impact the amount you pay overall, so the following table breaks down how this might happen for a $30,000, five-year loan:

Interest type Starting interest rate Interest paid after 2 yrs Interest rate after 2 yrs Total interest paid
7.50% p.a.
6.25% p.a.
7.50% p.a.
7.50% p.a.
7.50% p.a.
8.75% p.a.

As you can see from the rate above, the interest dropping by 1.25% for the final three years of the loan would save you just under $400, while the rate increasing by that amount would result in you spending just over $400 more.

Why choose Savvy for your variable rate car loan?

Common variable rate car loan queries

How can I save money with a variable rate loan?

There are a number of ways you can cut down on the total cost of your loan. Making additional repayments and choosing a shorter loan term are both ways of reducing the period over which you’re paying interest and fees, thus saving you money.

Additionally, making strides to improve your credit score (such as paying off existing debts and lowering your credit limits) can help you lower your interest rate.

Am I able to change to a fixed rate loan down the track?

Yes – you can refinance your variable interest loan to a different loan. This is achieved by essentially taking out a loan with another lender to pay off your existing loan in full, thus switching your loan commitments to a new agreement. This may be done for a variety of reasons, such as to consolidate debt or take advantage of a better interest rate.

What’s the difference between secured and unsecured car loans?

Secured car loans are the most common type of vehicle finance. They require an asset, namely the car itself, to act as collateral for the loan. As this provides a further safety blanket for the lender, rates are generally lower, adding to your overall savings. However, because the car has to be suitable collateral, you’re more restricted when it comes to your choice. We can arrange secured used car financing for vehicles up to 20 years old.

In contrast, unsecured car loans, also known as unsecured personal loans, are more flexible with how the funds can be used. Because there’s no collateral, you can buy any car of any age or condition you like without worrying about its suitability for the loan. They can also be processed more quickly, with funding available within one business day in many cases. These loans tend to come with higher rates and fees, though.

Are Centrelink payments accepted as income?

Yes – but not all Centrelink payments. More stable payments such as aged, veterans’, disability and carers’ pensions are accepted as part of your annual income, but conditional payments that could feasibly end prior to your loan’s conclusion will not. These include JobSeeker (not supplementing family tax benefits), Youth Allowance and Austudy.

What are the eligibility requirements for a variable rate car loan?

The eligibility for variable interest finance can vary between financiers. However, to qualify for your desired loan, you’ll have to meet the following criteria:

  • Be 18 years or older
  • Hold stable employment and be earning a fixed, stable income
  • If self-employed, have at least two years of trading
  • Hold Australian citizenship or permanent residency
  • Have no history of bankruptcy (though bad credit options are available)
  • Be able to supply all required documentation

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