Few consumers have the ability in today’s economy to simply pay cash for a vehicle, so it is going to sooner or later become necessary to borrow money by taking out a car loan. Prospective borrowers are constantly trying to determine what should classify as a good interest rate, but the simple fact of the matter is that it depends on a variety of different factors and certainly is not the same for every consumer. By understanding what factors will play a role in the interest rate calculation, an individual can make a better decision when it comes to accepting or declining a possible loan due to the interest rate.
Specific Vehicle Characteristics
The majority of vehicle shoppers fail to realize that their selection is going to play a significant role in determining the interest rate that they will be able to qualify for. Lenders will often offer better interest rates for new vehicles than they will for used vehicles. The interest rates on a car loan are based upon the perceived risk that a financial institution will face by financing the vehicle, and newer cars are going to statistically last longer than older ones. The age of the car will also impact how long a consumer is able to borrow the money, and an older vehicle may have a higher interest rate combined with a shorter repayment period. In addition to the age of the vehicle, the approximate value of the car will also help determine the rate of interest assessed.
Credit Score & History
Every consumer’s financial situation is different, and no lender is going to treat every possible borrower equally. A person’s credit score and bureau history is going to have the largest impact on the interest rate that they will be able to qualify for, and some individuals will simply not be able to obtain financing at all. A poor credit score indicates to a lender that there is a significant risk of the loan reaching default status, so the interest rate assessed is going to be much higher for these consumers.
Existing Relationships
Some consumers already have an existing relationship with a particular lender or bank, and these clients may be able to obtain a better interest rate than the general public. Individuals should never hesitate to ask about any special treatment that may be offered to them due to the business that they have conducted in the past. Even a small reduction in the interest rate on a car loan could amount to a great deal of money saved over the course of the repayment period.
National Averages
After a consumer understands the factors that go into calculating the interest rate, they can determine if they will qualify for the standard national rates or better. According to bankrate.com, current rates for a used car are as follows:
- 36 Month Term = 6.52%
- 48 Month Term = 6.39%
A new car is slightly less at 6.24% for either term. Individuals that can beat these national averages should rest assured that they are receiving a good interest rate.
Video:
- What Is A Good Interest Rate For A Car Loan?
- What is the Average Interest Rate on a Car Loan?
- What is a Good Interest Rate on a Car Loan?
- How to Refinance a Car Loan?
- How to Get Car Loan with Bad Credit?
