How to pay less on your car loan, before and after you sign

Before you apply: get your house in order

Lenders price loans partly on risk, so anything that makes you look like a lower-risk borrower can help. That includes:

• Checking your credit report and fixing any errors before you apply. You can get a free copy from the credit reporting bodies.
• Paying bills and existing debts on time, every time
• Paying down or closing credit you don't use, such as an unused credit card limit
• Keeping day-to-day spending under control in the months before you apply
• Saving a deposit or using a trade-in, so you borrow less against the car's value

Compare properly, but carefully

Rates, fees and features vary between lenders, so comparing is worth the effort. Be aware that each formal credit application can be recorded on your credit file, so firing off applications to lots of lenders isn't a great strategy. A broker can compare options across a panel on your behalf.

Compare the comparison rate and total cost of the loan, not only the headline rate, and look at the features too, such as whether extra repayments are allowed.

Choose the term with your eyes open

A longer term lowers each repayment but generally means more interest overall. A shorter term costs more each month but less in total. Pick the shortest term you can comfortably afford, leaving room in the budget for fuel, insurance, rego and servicing. The same thinking applies to a balloon: it lowers repayments now but adds to the total cost.

Check the fees and conditions

Before you sign, find out about establishment fees, any ongoing account fees, late payment fees, and charges for extra repayments or paying the loan out early. If you plan to pay the loan down faster, make sure the fees won't wipe out the benefit.

After you sign: small habits that add up

Once the loan is running, a few simple habits can reduce your costs:

• Set up automatic repayments timed to land just after payday, so you don't miss one
• If your loan allows it without penalty, put windfalls such as a tax refund or bonus towards the balance
• Keep a budget that includes the car's running costs, not only the loan

Consider refinancing if things have changed

If your credit history, income or the broader rate environment has improved since you took the loan out, refinancing to a better rate or a shorter term may reduce what you pay. Weigh up any payout fees on your current loan and set-up costs on the new one before you switch. Refinancing is subject to a fresh assessment.

General information only

This article is general information only. It does not take your personal circumstances into account and is not personal credit, legal, tax or financial advice. Rates, fees and loan features vary between lenders and borrowers, and all finance is subject to lender assessment and approval.

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