Interest on a car is based on a few considerations. There are variables that determine how much interest you will have to pay on a car loan.
The amount of interest paid on a car loan offers the lender protection determined on the level of risk factors of the buyer.
The amount of your interest rate makes a serious difference in the bottom line of how much you actually pay for a car over the term of the loan. Even one percent lower interest rate can mean a savings of thousands of dollars over the life of the loan.
It’s always in your best interest to get the lowest possible interest rate possible.
First, whether you buy a new or used car will make a difference in your interest payments.
Have you ever seen the ads offering 0 percent interest rates on new cars?
If you have, it is important to know that these special deals are offered to those that have near perfect credit. In addition, the loan term will be a shorter term, for example 36 to 48 months.
If you are fortunate enough to have a good credit score, a zero percent interest rate can be a great deal. The lower interest rates offered are possible because with a good credit score, you are less of a risk to the lender.
In addition, the rates will be lower because the car is brand new and the lender is confident that the loan will be paid off before the car begins to have any serious mechanical issues. Again, this is a lower risk for the lender.
The interest on a used car is usually higher because the lender risks the chance that the car will begin breaking down before the loan is paid in full. Because the car is used as collateral for the bank, they collect more in interest to protect their investment.
As I mentioned earlier, your FICO score will determine the interest on your car loan. Whether you go for a loan on a new or used car, the credit score you carry will be the most important factor when determining the interest rate on the loan.
Those with higher credit scores are less of a risk to the lender because credit history is provided as proof to the lender that you are responsible and pay back your debts in a timely fashion.
Likewise, lower credit scores reveal that you may be a high risk to the lender. What can help with a lower credit score is the payment history you show on previous car loans specifically. If you have continually been late on previous car loans, the lender isn’t going to give you the best rates.
Depending how bad your credit is the lender may not even give you a loan.
Another factor that determines interest on a car is the amount of the down payment. By putting some cash down it may help you to get the loan with a lower rate. This is because you will not be borrowing as much money and you have a vested interest in the car.
The amount of money you are borrowing against the car is another determination for the interest rate. Therefore, having a down payment of say 10 to 20 percent will help to lower the interest payments you make.