De-mystifying car finance: how lenders set your car loan rate

Ever wondered how lenders decide if you will be approved and what rate they will charge you? Here’s our breakdown of what key factors lenders look for
Scott Montarello
July 2020

How lenders decide what interest rate you should be charged, and if they will approve your loan, is a hidden and at times frustrating process - with little customer visibility of what they consider. We’re here to bring to light what many of these factors are and how it varies by lender.

Vehicle age

How old the car you are looking at buying is, is often the key determinant behind the rate that a lender will offer you. The importance of this factor varies significantly by lender - but as an example, a 4 year old car and a 5 year old car can have a different APR by 1% for some lenders. This may mean you could be better off buying a similarly priced car that is younger in some circumstances. 

Credit score

Credit score is generally the key factor for many lenders to determine both if you will be approved as well as what rate you will get. There are some free services that exist out there that will help you check your credit score before you apply. Many factors can affect your credit score, including how many credit enquiries you have made before, how many credit defaults you have, etc. 

At Driva, we avoid any impact to your credit score until you have decided on a lender you are happy to proceed with - this means you can see all of your indicative quotes from our panel of lenders without having any impact on your credit score.  

Defaults and bad credit

If you do have any history of bad credit or defaults, many lenders will take this into consideration. This doesn’t mean you won’t be eligible for every lender, but it may affect who will approve you or what APR they will provide you with. 

Housing status 

Some lenders also consider your current housing status when evaluating what APR to provide you with. For example, homeowners often receive better rates compared to renters or those boarding.


Whether you are providing the lender with a “security” over the car may also affect your rate. Some lenders don’t require any security over the vehicle you are buying, but the rate can often be higher as a result.

Stability of employment

How long you have been in your current employment can also be an important factor for some lenders. While this is a less common factor, it may impact your rate in some circumstances - and in fact, could make waiting a few months before you buy your next car worth it!

Want to hear more about what could impact the rate of your next car loan? Give us a call on 1300 755 494 or email us at