5 auto loan features to look for when buying your first car


So you’re about to buy your first set of wheels, but you know nothing about car loans. Well, you’ve come to the right place! But first…

Lesson 1: Don’t make the rookie mistake of signing up for the first auto loan that pops up on Google. If you want a competitive auto loan with a great interest rate and all the right features, then compare the prices!

Let’s get one thing straight, the features that come with your auto loan are what separate a good loan from a bad one – so they should never be neglected.

Here’s an overview of some of the key features you should look for in a car loan:

1. Lock in a low interest rate

When you take out a car loan to pay for a new or used vehicle, you won’t just have to pay back the amount you borrowed for the car – you’ll also have to pay interest on top of that.

This is why it is important to find a loan with a low interest rate. The lower the interest rate, the less interest you will have to pay on the loan. A low rate can really make all the difference – For example:


Indiana is looking for a car loan to help buy a brand new car. Using Mozo’s Car Loan Comparison Calculator, let’s compare two car loan options.

Option 1: By clicking on the first result in Google (rookie mistake) Indiana found a $30,000 car loan with a 9.30% per year fixed interest rate and a loan term of 7 years. Let’s use Mozo’s car loan comparison tool to see the amount of his regular payments, as well as his total interest over the life of the loan.

  • Monthly repayments: $487
  • Total interest paid: $10,929

Option 2: After comparing car loans on Mozo (wise move Indi), Indiana found a $30,000 car loan with a 3.97% per year fixed interest rate. Here’s what his regular repayments and total interest would look like over 7 years by opting for option 2.

  • Monthly repayments: $410
  • Total interest paid: $4,411

Total Savings: Going with Option 2, Indiana could potentially save $6,518

So, moral of the story: Still look for a loan with a low interest rate!

Fixed or variable interest rate:

Another thing you’ll need to decide when selecting an auto loan is whether you want a fixed or variable interest rate. The type of rate you choose can influence the cost of your loan, so it’s definitely something you’ll need to consider carefully.

  • Fixed interest rate: By choosing a fixed rate loan, you are essentially committing to a single rate for the entire term of your loan. This could be ideal for you if you like the certainty that your interest rate and repayment amount will never change, which can make budgeting a little easier. One of the downsides of a fixed rate, however, is that you could potentially incur fees if you try to pay off your loan early.
  • Variable interest rate: Variable interest rates fluctuate with the market, which means your interest rate and car loan payments could go up or down over the life of your loan. On the other hand, variable rate loans generally don’t charge a prepayment or an exit fee if you pay off your loan early.

2. Look for low to no fees

Depending on the car loan lender, you might be charged a range of different fees, such as:

  • Initial application fees: You may be charged a one-time application fee (i.e. “set-up” or “establishment” fee) when you take out your car loan.
  • Ongoing charges: Depending on the lender, you may be charged regular monthly service fees, annual fees, or other ongoing maintenance fees.
  • Late payment fees: Lenders often charge late fees (up to $30) if you miss or are late in making a repayment.
  • Break costs: Some lenders will charge a termination fee if you want to pay off your loan in full before the end of the loan term (usually more common with fixed rate auto loans).
  • Discharge fees: You may be charged a discharge or closing fee at the end of your loan term to cover costs associated with account termination.
  • Advance payment : Depending on the loan, you may be charged a prepayment fee if you default, transfer, or repay your loan before the end of the term.

Fees can really add up over time, so they’re an important factor when considering choosing a loan.

3. Flexible loan term options

The term of your loan can affect the total amount of interest you pay. Simply put, the longer the term of the loan, the more interest you will pay. Depending on your situation, opting for a shorter loan term could potentially save you a good chunk over time.


Austin wants to take out a car loan of $15,000 with an interest rate of 4.67% per year to help him buy a new car.

Option 1: Using our car loan repayment calculator, Austin found that by going for a 7-year loan term, he would pay the following:

  • Monthly repayments: $210
  • Total interest paid: $2,614

Option 2: Alternatively, by reducing his term to 5 years, here is what he envisioned:

  • Monthly repayments: $281
  • Total interest paid: $1,848

Verdict: By opting for a 5-year loan, Austin’s repayments would only be $71 more per month, but he would save a huge amount. $766 interest over the term of the loan.

Remember that while shortening your loan term can save you more over time, it all depends on your personal circumstances and whether you can afford to make larger repayments in a shorter time frame.

4. The possibility of making additional refunds

Another great feature is the ability to make additional repayments so you can pay off your loan faster. Here’s a scenario to give you an idea of ​​what additional refunds could save you:


Sahara currently has a car loan of $30,000 with an interest rate of 5.14% per annum and a loan term of 5 years.

Option 1 (No additional refund): Using our car loan repayment calculator, we found that without making additional repayments, Sahara will pay off her loan in 5 years with the following:

  • Monthly repayments: $568
  • Total interest paid: $4,084

Option 2 (With additional refunds): After receiving a $1,500 tax payment and $500 in birthday money, Sahara decided to make a lump sum payment of $2,000 on her car loan (in her first year in office). By doing this, she will save 4 months on her loan, so:

  • Total interest paid (with additional repayments): $3,752
  • Interest saved: $438

Just be aware that some lenders charge a fee when you prepay your loan, so be sure to check that out first.

5. A redraw function

If your lender allows additional auto loan repayments, they may also offer a withdrawal feature that allows you to tap into any additional repayments you’ve made if you need to access additional funds.

Just keep in mind that tapping into the extra refunds you’ve made is really defeating the original purpose, so try to only use this feature in an emergency.

Also be sure to check whether the redraw feature is free or if you will be charged a fee for using it – and find out whether or not there is a minimum redraw requirement.

Start comparing auto loans today to get a little closer to your new vehicle. For more on buying your first car, check out our guide to getting your first set of wheels.


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