How to Get the Best Car Loan Interest Rates
When choosing a car loan, there are many things to consider. For instance, is a lower down payment better for you? Or, do you want a longer loan term? Your credit score can affect the interest rate you qualify for. There are other factors you should consider too, including the amount of your down payment, your credit score, and the length of the loan. But whatever the case, these factors are worth considering when determining what loan type is best for you.
Low down payment
Putting more than 20% down on a car loan doesn’t always come with a disadvantage, but the amount should be considered carefully. You can use a trade-in car, cash, or debit card to make your down payment. Many lenders require a down payment of 20 percent or more. Putting more money down also saves you money in the long run, as you will have less interest to pay. Moreover, you will have lower monthly payments.
The interest rate you will pay for a low down payment car loan is largely determined by your credit score. In general, the better your credit score, the lower your interest rate will be. Keep in mind that lenders save the lowest interest rates for new car loans, so a higher down payment will result in a lower rate. However, when considering interest rates for a low down payment car loan, it’s worth considering the length of the loan term to ensure you’ll be able to pay it back.
Longer loan term
While it may seem tempting to get a shorter car loan term, this option may not be practical for many people. A longer loan term will mean more interest charges over the life of the loan. The monthly payment will be higher, but a higher percentage will go towards the principal – this means building equity sooner. But a shorter term may not be feasible for many people – or even for the car you want.
Another way to lower your car loan interest rate is to stretch the length of your loan. A 72-month loan will have a higher fee, but it will have lower monthly payments. Moreover, a longer loan term doesn’t allow you to build any equity in your car until close to payoff, so you will owe more than what the car is worth until you make your final payments. This makes the car unusable as a trade-in vehicle, as you’ll have to pay back the difference in the next loan.
Credit score
Your credit score is one of the most important factors that lenders look at when determining the interest rates of car loans. It tells them how likely you are to repay the loan based on your payment history and current financial situation. Lenders use the FICO credit score to evaluate the reliability of a potential borrower. It’s made up of five main components, each of which is weighted differently. By knowing your score, you can secure the lowest interest rates possible.
Car loan interest rates are based on several factors. The age and mileage of the vehicle, state you reside in, and the lender’s view of your credit score. The longer the term, the higher the interest rate, but shorter repayment terms will lower the monthly payment. For this reason, it’s important to know your credit score before applying for a car loan. A bad credit score can cost you thousands of dollars in interest charges.
