The interest rate you pay on a car loan has an enormous impact on how much you pay in total over the life of the vehicle purchase. That’s why finding the lowest possible auto loan rate is such a financial smart move. The good news is that there are a number of factors that you can control to help lower your rate, including credit score, loan repayment term, loan amount and type of car.
Car loan rates have been rising steadily over the past year, but it’s important to remember that they are still relatively low in historical terms. This is especially true considering that average new-car prices have also risen. As a result, many dealerships are offering buyer incentives like 90-day deferred payments, higher cash value for trade-in vehicles and lowering manufacturer’s suggested retail prices to attract buyers who would otherwise be scared off by the rising cost of cars and loans.
Typically, your credit score is the biggest factor in determining what loan rate you’ll get. But there are a few other things that can make you more eligible for a better rate, such as having a larger down payment or having a smaller debt-to-income ratio. In some cases, you can even save money by getting a cosigner.
As with any other type of financing, it’s vital to shop around for the best auto loan rate available. You can find multiple lenders who offer competitive rates by entering your credit score, desired loan amount and other criteria into a car loan calculator tool. You can then compare these offers to determine what is the best fit for your specific situation.
In the past few years, there has been a shift in how people buy and finance cars. Many people are choosing to use online lender platforms that make the process easier by allowing you to pre-qualify before heading to the dealership. This can remove some of the stress of the buying process and allow you to shop with confidence knowing what your budget is and what your monthly payments will be.
Another way to reduce your car loan rates is to opt for a shorter loan term. Lenders charge less in interest on shorter-term loans because they know that you will be more likely to repay the loan quickly. Longer loan terms have the potential to carry much more interest than short-term loans, so they end up costing you more over time.
In recent months, credit union lenders have taken a greater share of the market for new-car loans than banks and captive finance companies. These lenders are often able to offer lower rates because they don’t have the same overhead costs that bigger financial institutions do. This is particularly true for national credit unions that have partnered with thousands of car dealerships nationwide. This is a big advantage because it allows the lender to offer competitive rates without having to spread its costs to a much larger group of customers.