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Variable rate car loan guide

A car is a necessity, and one way to finance your new set of wheels is with a variable rate car loan.


If you’re in the market to upgrade your car or even buy your first vehicle, you might be wondering what the right type of loan is for you. A variable rate loan offers you a flexible way to finance your new vehicle purchase. There are a few different types of variable loans to consider, both for new and used vehicles, plus secured and unsecured loans. Read more in our guide below.

What is a variable rate car loan?

A variable rate car loan has a fluctuating rate of interest, so your repayments may change if the market interest rate alters, which means your interest rate may increase or decrease. However, your loan also comes with increased repayment flexibility when you compare it to a fixed-rate loan.

What are the different types of car loans with a variable rate?

When it comes to car loans with variable rates, there are two leading loan types:

  • Unsecured car loans.
    With an unsecured car loan, the lender does not require a guarantee. If you are unable to repay the loan, the lender does not have any right to take your assets. Interest rates tend to be higher on unsecured loans.
  • Secured car loans.
    A secured car loan requires a vehicle as a guarantee to receive approval for the loan. If you default on the repayments, the lender has the right to sell the guaranteed asset to reclaim its losses.

Questions to ask when considering variable rate car loans

Considering the following factors can help you compare your variable rate loan options and find the right one for you:

  • What interest rate do the lenders charge?
    Even though the rate is variable, looking at the rate that applies to the loan will give you an idea of the competitiveness of the product.
  • What fees come with the loan?
    Look for upfront fees such as loan establishment fees, plus ongoing costs such as monthly and annual fees.
  • Can you make additional repayments?
    Variable rate loans tend to be more flexible regarding additional repayments, so check if you can make extra or lump sum repayments.
  • Can you repay the loan early without penalty?
    Early repayment is another common feature of variable rate loans; check if an early repayment or early termination fee applies.

Things to be careful of with variable car loans

  • When taking out a variable car loan try to avoid long-term loans. The longer you pay out a variable rate loan, the higher the risk of the interest rate going up. If you do take out a longer loan term, opt for one that does not charge you for early repayments.
  • If you wish to take out a loan with a dealership, make sure that the interest rate isn’t higher than average. It is crucial to carry out a comparison before committing to anything. Ask the dealer about fees, charges, balloon payments and the comparison rate.
  • If the lender declines your application for a car loan, it may be a good idea to wait a few months before reapplying. Numerous applications look bad on your credit history. You can use the services of a car loan broker beforehand, to maximise your chances of approval.

Questions you’ve asked about variable rate car loans

Where can I conduct a comparison of New Zealand car loans?

You can start your comparison of variable rate car loans on this page. You can also see our car loan comparison, and we’ve also included a guide as to how to compare them. Remember to compare loans side-by-side to check how each one stacks up.

Can you refinance car loans?

Yes. To learn more about this process, have a read of our refinancing car loans guide. You can also refinance a balloon payment if your finance has this option. Bear in mind that it may mean you end up paying more in interest over an extended period.

Do you have a car loan calculator I can use?

We have a personal loan calculator that can help you estimate the amount your loan will cost.

Can I switch from a variable rate loan to a fixed rate?

You need to refinance your existing loan to switch the type of interest.

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