Make your monthly loan payments easier with a fixed-rate car loan.
Found the car you want to buy? Whether it’s new or used, you can find a low rate that stays low for the life of your loan term when you opt for a fixed-rate car loan.
Read our guide and compare your options to learn more about fixed rate car loans.
How do fixed-rate car loans work?
Unlike variable rates that can change from month to month, a fixed-rate car loan keeps the same interest for as long as you’re borrowing. A fixed rate protects your from market fluctuations and makes it easier to budget for your monthly car payment. However, you’ll find that the loan comes with more restrictions. You generally won’t be able to make extra payments or repay your loan early — or will pay fees to do so.
Generally lenders require you to use your entire loan amount on the car purchase, although some unsecured loans allow you to borrow extra to cover additional vehicle costs like insurance or extras. Once you’re approved for the loan, you’ll start making ongoing payments throughout the loan term, which can be anywhere from one and seven years, until the loan is repaid in full.
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Are there different types of fixed-rate car loans?
There are two types of fixed rate car loans: secured and unsecured.
- Fixed-rate secured loan. With a secured fixed rate car loan, the lender will use your vehicle as collateral for the loan. This means that if you default on your loan, the lender can repossess your car. These loans generally come with lower rates as they are a less of a risk for the lender.
- Fixed-rate unsecured loan. An unsecured fixed rate car loan means you won’t have to use your vehicle to secure the loan. The loan is more of a risk for a lender, so you’ll likely pay a higher APR. But unsecured loans offer the flexibility to use your loan amount for anything you may need.
How do you find the right lender?
- Pick your car. Start by researching your vehicle options. You won’t get accurate terms until you know how much you’re spending, the car you’re buying and who the seller is.
- Find a lender. Once you’ve narrowed down your car search, it’s time to find a lender. Look at banks, credit unions and online lenders to start the comparison process. It’s important to compare the fee structure, interest rate and other features offered by different lenders in the market so you can find the loan that suits your financial needs.
- Determine your budget. Longer loan terms mean lower monthly payments, but will cost more in the end. Having a large down payment can also help lower your interest rate since you’ll borrow less.
- Apply. Submit an application once you’ve found a lender with decent fixed rates and reasonable loan terms. You may have to fill out multiple applications at once, and your approval depends on your credit and how much you can afford to borrow. To save time, consider using a broker that can connect you with multiple options.
Benefits and drawbacks of a fixed-rate car loan
- Fixed repayments can help you budget throughout your loan term.
- You can lock in a competitive rate for the life of your loan.
- A fixed rate loan does not offer flexibility if the market rate changes.
- You may be offered a less competitive rate.
3 mistakes to avoid when borrowing
Although a fixed-rate car loan can offer benefits, consider the following before you commit to a loan:
- The fine print. Lenders can get sneaky and hide fees, conditions and other charges in the fine print. Make sure you read and understand the loan you’re signing onto.
- Early repayment fees. There may be early termination fees or early payoff penalties attached to a fixed-rate car loan.
- Car ineligibility. Make sure the car you’re planning on purchasing is eligible under the terms of the loan. Most lenders will set maximum age limits on used cars and want the car you choose to be in good condition.
A fixed-rate car loan is a good option if you want to lock in your interest rate. You’ll know exactly how much you owe each month, how much the loan will cost you and have a list of all the fees your lender could charge. Don’t forget to learn more about car loans, and always compare your rates to find the best option for you.
Frequently asked questions
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