Finance the Ride / Car finance
Fixed vs Variable Car Loan Rates: Which Makes More Sense?
Most Australian car loans are fixed, but some lenders offer variable rates. How each works, what flexibility you trade off and how to decide.
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Short answer: For most people a fixed rate is the default. Most Australian car loans are fixed, so your repayment stays the same for the whole term. A variable rate can suit you if you want to make extra repayments or pay the loan out early without penalty, as long as your budget can absorb a rise in rates.
How each option works
With a fixed rate, the interest rate is set when the loan starts and doesn't change. You know the exact repayment from day one to the last payment. The trade-off is usually less flexibility. Some fixed loans limit extra repayments or charge a fee if you pay the loan out early.
With a variable rate, the lender can move the rate up or down over the term, usually following the wider market. Variable car loans are less common and mostly come from some banks and credit unions. They often let you make extra repayments and pay out early with little or no break cost.
| Fixed | Variable | |
|---|---|---|
| Repayment amount | Stays the same | Can rise or fall |
| Extra repayments | Sometimes limited | Usually allowed |
| Early payout | May involve a fee or break cost | Usually cheaper to exit |
| Availability | Offered by most lenders | Offered by fewer lenders |
| Best suited to | Tight or predictable budgets | People planning to pay off faster |
What a rate change looks like in dollars
Example only: $30,000 over 5 years at 9% p.a. works out to about $623 a month. If the rate were 10% p.a. for the full term, the repayment would be about $637 a month, and total interest would rise from roughly $7,365 to $8,245. On a variable loan, changes apply from the date they take effect, so the real impact depends on when and how far rates move.
That gap is manageable for some budgets and a problem for others. If a $15 to $30 monthly rise would stretch you, fixed is probably the safer choice.
Questions to ask before choosing
- Can I make extra repayments, and is there a cap?
- What does it cost to pay the loan out early? Ask for the break cost or early termination fee in writing.
- Is there a balloon payment? Balloons are usually only available on fixed loans.
- What's the comparison rate? It rolls most standard fees into one figure so you can compare loans more fairly.
- For a variable loan: how often has the lender changed its rate, and how much notice do they give?
Which is better for you?
Fixed usually suits you if you want certainty, you're on a set income, or you plan to keep the car for the full term. Variable can work if you expect a bonus, tax refund or pay rise that you'll put towards the loan, or if you might sell the car and pay out the loan early. Either way, the rate you're offered depends on the lender, your credit history, the car and the loan structure, so compare the full terms, not just the headline rate.
Weighing up fixed or variable? Tell us about your situation in about 60 seconds and a licensed broker will call you. No credit check to enquire.
Related guides
- How to calculate the true cost of a car loan
- Early termination fees in car finance
- Balloon payments: what you need to know
General information only. This isn't financial advice. Finance the Ride is a referral service and doesn't hold an Australian Credit Licence. Last reviewed September 2026.
About this guide. Written by the Finance the Ride team and last updated . It's general information for Australian borrowers, not financial advice, and doesn't take your circumstances into account. Finance the Ride is a referral service: we don't lend money or hold an Australian Credit Licence. About us