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Car Loans
How to calculate your car loan repayments
If you’re taking out your first car loan, understanding your car loan repayments is essential to making sure the loan fits comfortably into your budget.
Car loan repayments are the amount you’re required to pay your lender each week, fortnight or month, and they’re one of the most important figures to consider when comparing loans. Your repayments need to cover not just the loan itself, but also leave room for everyday expenses, such as fuel, insurance, registration and servicing, as well as unexpected costs.
How car loan repayments work
Principal and interest explained
When you borrow money, there are two parts to what you repay: the principal and the interest.
The principal is the amount you borrow - for example, $25,000 to buy a car. Interest is what the lender charges for providing the loan, calculated as a percentage of that amount.
Fixed vs variable interest rates
Most car loans will typically offer a fixed rate. With a fixed loan, the rate stays the same for the life of the loan. With a variable loan, the interest rate can change over time in response to market conditions and lender decisions, which means your repayments may go up or down.
More: How much can I borrow for a car loan?
How to calculate car loan repayments
Using a car loan repayment calculator
While it can seem complicated at first, calculating car repayments in Australia is straightforward.
RACV Finance’s online car loan repayment calculator lets you quickly see what you’ll pay based on the loan amount, interest rate and loan term.
Weekly, fortnightly or monthly repayments
RACV's car loan calculator allows you to get an estimate of possible fortnightly or monthly repayments. However, you may choose to pay weekly.
Most lenders let you choose how often you make repayments. It usually makes sense to match this to how you’re paid, while also considering your spending habits.
RACV Car Match shows the estimated running costs for every car sold in Australia, including servicing and maintenance, with monthly breakdowns to help you plan ahead.
Example of car loan repayments
For a $25,000 loan at 6.9 per cent interest, monthly repayments are estimated to be around $493 over five years. Extending the same loan to seven years would reduce repayments to about $376 per month.^
Over five years, repayments would total $29,580, compared with $31,584 over seven years — around $2,004 more. In the end, it comes down to what works best for you and what you can comfortably afford.
These figures are estimates only and assume a fixed interest rate with no additional fees.
More: How much should you spend on a car?
Extra repayments and paying off your car loan early
Break fees and early payout costs
Another important factor to consider is whether your car loan allows extra repayments if your financial situation improves. Paying off a car loan early can reduce the interest you pay over the life of the loan, but the rules vary by lender.
Carlos Gasser, General Manager of RACV Finance, says most lenders allow additional repayments, but borrowers should always check the loan conditions first.
“Most lenders will allow some form of extra repayments, but many charge a break fee if you pay out the loan early,” he says. “At RACV, a flat $325 break fee applies if the loan is paid out more than six months before the end of the term. If there are fewer than six months remaining, no fee applies.”
Do car loans offer redraw facilities?
It’s also important to understand whether your loan offers a redraw facility.
"While RACV allows early repayments, it does not allow redraws - meaning once you make extra repayments, you can’t access those funds later," Gasser says. "Some lenders do offer redraws, but in general, it's not like a home loan where you've got an offset or redraw that you can use."
Find out your personalised car loan rate by getting a quote online with RACV Car Loans, or apply over the phone by calling 13 15 60.
FAQs
This depends on your lender and loan type. Some car loans allow you to make extra repayments or adjust how often you pay, while others may charge fees if you change or pay out the loan early.
Weekly repayments can suit people who are paid weekly and prefer smaller, more regular outgoings, while monthly repayments may be easier to manage if your income and other bills are monthly.
The most important thing is choosing a repayment schedule that fits your budget and is easy to keep up with. In the end, it comes down to what works best for you and what you can comfortably afford.
Your repayments should fit comfortably within your budget after covering everyday expenses and leaving room for unexpected costs. Using a car loan repayment calculator can help you estimate repayments and compare different loan terms before committing.
R.A.C.V. Finance Limited ABN 82 004 292 291 Australian Credit Licence No. 391488. RACV Finance is subject to RACV lending criteria. Conditions, fees and charges apply.
Advice given in this article is general in nature and is not intended to influence readers’ decisions about financial products. You should always seek your own professional advice that takes into account your own personal circumstances before making financial decisions.
^ Comparison rate calculated on a loan amount of $30,000 secured over a term of 5 years based on monthly repayments. WARNING: This comparison rate is only true for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts will result in a different comparison rate.
