Question 1

What is the difference between a fixed and variable interest rate?

Accepted Answer

A fixed interest rate stays the same for an agreed period, giving you certainty over your repayments. A variable interest rate can change at any time based on market conditions, meaning your repayments may go up or down. Fixed rates provide stability while variable rates may offer more flexibility, such as allowing extra repayments without penalty.

Question 2

What is a balloon payment on a car loan?

Accepted Answer

A balloon payment (also called a residual value) is a lump sum due at the end of your loan term. It reduces your regular repayments during the loan but means you owe a large amount at the end. You can pay it off, refinance it, or trade in the vehicle. Balloon payments are common on novated leases and some dealership finance packages.

Question 3

How do extra repayments save me money?

Accepted Answer

Extra repayments reduce your loan principal faster, which means less interest is charged over the life of the loan. Even small additional payments each period can significantly reduce the total interest paid and help you pay off your loan sooner. Check with your lender whether your loan allows extra repayments without fees.

Question 4

What is a comparison rate and why does it matter?

Accepted Answer

A comparison rate includes both the interest rate and most fees and charges associated with a loan, expressed as a single percentage. It helps you compare the true cost of loans from different lenders. By law, Australian lenders must display a comparison rate alongside the advertised interest rate. The comparison rate is calculated on a $30,000 loan over 5 years.

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