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There are a range of factors to take into consideration when deciding on using a secured fixed rate car loan as opposed to a variable rate car loan.
The most obvious difference is whether you require locking down your interest rate for the whole term of the loan with a fixed rate. This gives you certainty of the periodic payment, which is great for assisting with your personal budget.
However, most fixed rate loans come with early termination fees if the loan were to be finalised earlier than the agreed term and this should be a consideration in regards to your decision making as to what your plans are with your loan and how early you plan to pay it out, if at all.
With a variable rate car loan, the lender has the ability to change the interest rate where it can fluctuate with the market and may move closely to what the Reserve Bank of Australia (“RBA”) is doing with the cash rate; however in recent times, lenders have also been moving their interest rates independently of the RBA’s movements.
A Variable rate car loan can make it a little harder to maintain your expenses on your personal budget as with a variable interest rate, this would also mean that your periodic payments would also fluctuate.
As the lender has the ability to change the interest rate in line with their economic costs, quite often if a variable rate car loan was terminated early, there would be very minimal or no early exit costs and this could be advantageous if the plan was to pay the loan out early.
Most car loan providers generally don’t offer a choice between variable and fixed rate and the main lenders only offer fixed interest rates on car loans, which usually makes this market more competitive which can result in cheaper interest rates that are to stay the same over the full term of the loan.
The early termination fees with most fixed rate car loans are not that large a cost, which can in many cases make it a more appealing option, but it is not always the best option and you can often find that much smaller borrows over shorter loan terms, that variable rate unsecured loans could be a cheaper option with more flexibility, although the interest rate may be higher.
It comes down to the clients overall intentions for the full term of the loan in regards to what will be the best option and due to the maze that is car loans, good professional advice is always recommended.
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