Fixed vs floating car loan rates.

On most consumer car loans written in New Zealand, the interest rate is fixed for the whole term, which means the repayment is set from the day the contract is signed and holds until the balance reaches zero. That fixed structure is the reason a repayment calculator can be a reliable guide to the weekly cost.

Floating or variable structures also exist, more often on revolving credit facilities, some non-bank products, and larger or commercial arrangements, where the rate can move up or down with the market and the repayment moves with it. The trade-off runs both ways. A fixed rate gives you budgeting certainty and no benefit if the market later falls, while a floating rate can fall or rise with the market and hands you a repayment that will not sit still.

Neither is universally cheaper, because which one wins depends entirely on where rates go next, and nobody knows that in advance.

A fixed-rate car loan runs on an amortising schedule. Each payment covers the interest since the last one and puts the rest against the principal, so the balance falls steadily. Early on, more of each payment is interest. Later, as the balance shrinks, more of it goes to principal. The payment itself never changes, because the rate never does.

That is what makes a repayment calculator dependable here. Put in the amount financed, the fixed rate and the term, and you get the same weekly, fortnightly or monthly figure the lender's own amortisation produces, because both run the same formula on the same inputs. The output above is indicative rather than an offer, but the mechanics behind it are exactly how a fixed loan runs.

The unchanging payment is the part people actually notice. The same number leaves your account every pay cycle for the whole term, with nothing to re-forecast when the market shifts. Known in advance, and it doesn't move. That is the whole point of fixing.

The difference is a trade between certainty and flexibility, and it genuinely cuts both ways. A fixed rate gives you a payment that never moves, which makes budgeting easy and takes rising rates off your plate for the whole term. What that certainty costs is the upside. A fixed loan doesn't get cheaper when the market falls, because you keep paying the rate you agreed to.

Floating carries the opposite pair. It falls when the market falls, passing the saving on without you lifting a finger, and it rises when the market rises, lifting your repayment at a moment that may not suit your budget at all. The uncertainty is the price of the saving. Neither is universally cheaper, because which one wins depends on where rates go, and nobody knows that in advance.

Which of those matters more is genuinely personal. Some people put a high value on a payment they can set and forget. Others are comfortable carrying the movement for a shot at a lower cost. The RBNZ publishes OCR decisions and commentary that shape where market rates sit, but no calculator and no contract can tell you which way the next one goes.

Whatever the structure, it is documented before you sign. Under the CCCFA a lender gives you a disclosure statement setting out the interest rate, whether it is fixed or variable, the fees and the total cost of credit. On a fixed loan that disclosure shows a rate that will not change. On a variable one it sets out how and when the rate can be adjusted. Either way it is written down rather than assumed.

Market rates move for reasons that have nothing to do with any one loan. The Reserve Bank sets the Official Cash Rate, which drives the cost of funds across the banking system, and lenders reprice new lending as their own funding costs shift. That flows through to rates on new contracts. A fixed loan already running is insulated from all of it. A floating loan is exposed to all of it.

None of this makes one structure correct. It just explains why they behave differently. A fixed rate turns an uncertain future into a known payment. A floating rate leaves your payment tied to a market that the RBNZ and wider funding conditions keep moving. Your disclosure statement is where the specific terms of either one live.