5 Interest Rate Factors to Be Aware Of

For anyone who is new to the process of getting a car loan, knowing about the interest rate factors involved in the financing deal can save the customer a lot of money. Making informed decisions based on your credit and other interest rate factors can make all the difference in cutting down the eventual costs of getting your dream car on the road. Lots of complicated auto lending is very dependent on these interest rates or APR (annual percentage rate) percentages.

Factors in Auto Loan Interest Rates

1. Your Bills, Your Debts and Your Credit – Everything on your own personal financial balance sheet contributes toward something called a credit score. Each person’s credit score is determined by a company called FICO or Fair Isaac. These credit scores are essentially risk ratings that get used by lenders who want to assess a borrower’s interest rates according to their risk. That means a bad credit score leads to a high interest rate offer.
2. Knowing Your Credit Score – A car customer’s knowledge of their own credit scores also contributes to lower interest rates. Dealerships and other lenders will often try to trick customers into believing that they don’t qualify for lower interest rates. In order to get what’s fair, car shoppers have to know what their credit score is, how to improve that score and what kinds of rates generally go along with the score. A lot of this is accomplished by shopping around and asking questions, comparing various lenders to see where the real deals are in terms of a good interest rate.
3. Assets – Those who already have a vehicle or who own a home can sometimes get better interest rates with secured auto loans, where their assets are used as collateral. The upside is that interest may not grow as quickly in these financing agreements. The negative side is that the assets may be vulnerable to seizure if the loan is not paid on time.
4. Prime Lending Rate – Lots of car financing deals are tied to what’s called the U.S. prime lending rate. This is the basic interest rate at which banks loan to each other, and it affects all kinds of personal loans to consumers, including car loans. Where interest rates have been historically low at times, they generally fluctuate, and knowing about the prime interest rate will help those looking for auto financing to know where they stand in terms of the average interest rates that they will be offered.
5. Down Payments – In some cases, it makes a difference to lenders whether a buyer is able to put a lot of money down. Some buyers who come to the dealership with a big check can see their interest rates go lower for the remainder of the money that they will be financing. Down payments are a signal to the lender that the buyer is serious about the deal, and that he or she has the means to pay off a loan. While a larger down payment doesn’t always lower interest rates, it is also really useful in minimizing the amount that the borrower will have to pay interest on, and in most cases, presenting a down payment is a very good financial decision.

Shoppers who are looking for financing from a dealership or other lender can keep all of these things in mind to scout out the best interest rates for their vehicle deals.