3 Things To Know About Interest Rates When Applying For An Auto Loan
Posted on: 2 August 2016
Getting a car loan is often the only way to buy a nicer car, and you can get a car loan by applying through a company that offers auto financing. When you apply for a loan, the lender will determine if you qualify for a loan and the amount of money you can borrow. In addition, the lender will also determine what the interest rate will be on the loan. Interest rates vary based on the economy, but there are three other factors that can affect the interest rate you get on your new car loan.
Interest Rates Are Lower On New Cars
The first factor that determines the interest rate on your loan will be the age of the vehicle you purchase. The age of the car you want to buy will have a lot to do with the interest rate you end up qualifying for. Interest rates are usually lower on newer cars than on older ones, and there are several reasons for this. The main reason is because of the value of newer cars. Newer cars are worth more and can be sold for higher amounts if they are repossessed.
A second reason new car rates are often lower involves the type of people that purchase them. People with low credit scores often look for cheap, older cars to buy, whereas people with great credit often purchase new cars. Good credit typically means lower rates.
Interest Rates Are Lower For Shorter Terms
A second factor that affects interest rates on car loans is the length of the term of the loan. Loans that have shorter terms typically have lower interest rates. If you want to qualify for the lowest rate on your car loan, you may need to consider choosing a loan with a shorter term. Just keep in mind that when you take shorter-term loan, your payments will be higher. The benefits of this are that you may receive a lower interest rate and pay less in all for the car you purchase if you choose a shorter term.
Interest Rates Can Be Affected By Your Down Payment
The third factor to consider is the way your down payment amount may affect the interest rate you get on your auto loan. In most cases, lenders will want to know how much the car is worth and the amount of your down payment before telling you what the interest rate will be. This is because the amount you put down will usually affect the rate. To get the lowest rate on your loan, you may need to put a significant down payment on the car when you purchase it.
Lenders prefer larger down payments because it puts equity in the vehicles right away. If you are buying a new car, you may have negative equity in the car as soon as you leave the car dealer's lot. If you put a lot of money down on the car, this will not be the case. Your car will already have equity in it, and this reduces the risk factor for lenders.
Typically, lenders usually want to see a 5% down payment, but placing a 20% down payment on the vehicle you buy may offer the best interest rate. In addition, the money you put down will reduce the total amount you must borrow, and this will result in lower monthly payments.
Your credit score will also play a role in the interest rate you get and the amount of money you can borrow through an auto lender. If you are ready to buy a new or used car and would like to find out more about auto financing, contact a lender in your area to see what type of rate you qualify for, or you can find out more information by clicking here.
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