When shopping for a car loan in Australia, it's easy to focus solely on the interest rate. After all, it's the headline figure that lenders prominently display and that borrowers naturally compare. However, the true cost of a car loan extends well beyond the interest rate. Various fees and charges can add hundreds or even thousands of dollars to your total loan costs. Understanding these fees is crucial for making an informed decision and avoiding unpleasant surprises.

Establishment Fees (Application Fees)

The establishment fee, sometimes called an application fee or setup fee, is a one-time charge for processing your loan application and setting up your account. This fee covers the lender's administrative costs for assessing your application, conducting credit checks, and preparing loan documentation.

Establishment fees in Australia typically range from $0 to $400, with most lenders charging between $150 and $300. Some lenders advertise "no fee" loans but compensate by charging slightly higher interest rates. Depending on your loan amount and term, paying a modest establishment fee for a lower interest rate might actually work out cheaper overall.

When comparing loans, always factor in the establishment fee. A loan with a $0 fee but 0.5% higher interest rate will often cost more over a typical five-year term than a loan with a $200 fee and the lower rate.

Monthly Account Keeping Fees

Many car loan providers charge ongoing monthly fees for maintaining your loan account. These fees typically range from $5 to $15 per month, which might seem small but adds up significantly over time. On a five-year loan, a $10 monthly fee totals $600—a cost that's easy to overlook when comparing headline interest rates.

Some lenders have eliminated monthly fees entirely, particularly online lenders with lower overhead costs. When comparing loans, calculate the total monthly fees over your expected loan term and add this to your cost comparison.

Early Termination Fees (Early Exit Fees)

If you pay off your car loan before the agreed term ends—whether by selling the car, refinancing, or simply having extra money to clear the debt—you may face early termination fees. These fees compensate the lender for the interest income they lose when you exit the loan early.

Early exit fees are more common with fixed-rate car loans, where the lender has committed to a specific rate and can't easily recover their position if you leave early. The fee might be a flat amount (ranging from $200 to $500 or more) or calculated as a percentage of the remaining balance or interest foregone.

If there's any chance you'll pay off your loan early—perhaps you're expecting an inheritance, bonus, or might sell the car—prioritize loans with low or no early exit fees. Variable rate loans typically offer more flexibility in this regard.

Late Payment Fees

Missing a loan repayment or paying late will almost certainly incur a fee. Late payment fees in Australia typically range from $15 to $35 per occurrence. While this might seem minor for a one-off situation, habitual late payments not only accumulate fees but can also negatively impact your credit score.

Setting up automatic direct debits aligned with your pay cycle is the best way to avoid late payment fees. Most lenders allow you to choose your payment date, so pick a day shortly after your regular payday to ensure funds are always available.

Redraw Fees

Many car loans offer a redraw facility, allowing you to access any extra repayments you've made if you need funds later. While this flexibility is valuable, some lenders charge fees each time you redraw funds—typically $20 to $50 per transaction.

If you plan to make extra repayments but might need to access those funds later, look for loans with free redraw facilities. Alternatively, if you don't anticipate needing the redraw feature, a loan without it might offer a slightly better rate.

PPSR Registration Fees

For secured car loans, the lender registers their interest in your vehicle on the Personal Property Securities Register (PPSR). This registration protects their security interest if you default on the loan. The government charges a small fee for this registration (typically around $6-$8), which the lender usually passes on to you, sometimes with a small markup for administration.

When the loan is repaid, the lender must remove the registration from the PPSR. Some lenders charge a discharge fee for this process, while others include it in their overall fee structure. It's a minor cost but worth noting.

Documentation and Valuation Fees

Some lenders charge separate fees for preparing loan documentation or conducting vehicle valuations, particularly for used cars. Documentation fees might range from $50 to $200, while valuation fees (if required) can be $100 to $300 for independent assessments.

These fees are more common with smaller lenders or in situations involving unusual vehicles. When obtaining loan quotes, ask specifically about any documentation or valuation costs that might apply to your situation.

Understanding the Comparison Rate

Australian lending regulations require lenders to display a "comparison rate" alongside the advertised interest rate. The comparison rate incorporates most fees and charges into a single percentage figure, making it easier to compare the true cost of different loan products.

The comparison rate is calculated based on a standard $30,000 loan over 5 years. If your loan amount or term differs significantly, the actual comparison might vary. Nevertheless, the comparison rate is a useful starting point for comparing loans and understanding the impact of fees on your overall costs.

Use our car loan repayment calculator to see how different interest rates affect your repayments, and remember to factor in the fees discussed above for a complete cost picture.

Hidden Costs to Watch For

Beyond standard fees, be alert to potential hidden costs:

Compulsory add-on products: Some lenders, particularly through dealer finance, may bundle loan protection insurance or extended warranties into the loan. While these products have their place, they're often overpriced when sold with finance. You can usually find better value purchasing them separately if you need them.

Higher rates for older vehicles: Many lenders advertise their best rates for new cars. If you're buying used, especially an older vehicle, the rate you're offered might be significantly higher than the headline rate.

Dealer finance markups: When financing through a car dealer, be aware that dealers often receive a commission for arranging finance. This might be reflected in a higher interest rate compared to going directly to the lender.

Conclusion

The interest rate is an important factor in choosing a car loan, but it's not the whole story. By understanding establishment fees, monthly charges, early exit fees, and other costs, you can make a more informed comparison between loan products. Always look at the comparison rate, calculate total costs over your expected loan term, and read the fine print before signing. A loan with a slightly higher rate but lower fees might save you money overall—and vice versa. Take the time to do the math, and you'll be in a much better position to choose the right car loan for your situation.

Understanding Car Loan Fees and Charges in Australia