How to compare the total cost of a car loan

Start with the drive-away vehicle price, then subtract any cash deposit and trade-in credit. Add only the fees and add-ons that will genuinely be financed. Dealer accessories, insurance and protection products should be listed separately so their effect is visible rather than disappearing into one loan balance.

A larger deposit reduces both the amount borrowed and the interest charged on that amount. It also leaves less cash available for registration, servicing, repairs and insurance, so the deposit should not empty the household's emergency reserve.

Use the same loan amount and term when comparing offers. Record the interest rate, establishment fee, monthly fee, early repayment rules and any final balloon or residual. The comparison rate is useful for a standardised comparison but may not capture your exact loan size, term or optional charges.

A balloon reduces regular repayments by leaving part of the principal until the end. It does not make that amount disappear. Interest may be charged while the balloon remains outstanding, and the borrower needs a credible plan to pay, refinance or sell the vehicle at the end of the term.

Do not assume the vehicle's future sale value will equal the balloon. Depreciation, kilometres, condition and market demand can leave a shortfall. Test a lower resale value and include the possibility of having to fund the difference.

Finance is only one part of vehicle affordability. Compare repayments together with registration, insurance, fuel or charging, servicing, tyres, parking and depreciation. A cheaper loan attached to a substantially more expensive vehicle may still create the higher total household cost.