Things to Consider while Determining Car Loan Interest Rate
Are you thinking of purchasing a new car?
Are you looking for a finance company that provides car loan at low interest rates?
If you are pondering on taking a car loan, you must also determine how the money lenders calculate the interest rates that are offered to you.
There are several factors involved in determining the car loan interest rate, which includes
- Credit Score or Credit History
Credit history is considered the most influential factor in determining the interest rates. Poor credit score would give you rates that are higher as compared to someone with great credit score. Be it a bank or any individual financial firm, lenders will always take a peak interest in your credit history. It depicts the mirror of your credibility and gives them the confidence that you will pay the debt back.
- Age of the Vehicle
Interest rates also depends on the what kind of car you are buying. Is the car a new one or a pre-owned car? If your car is brand new, the rates will be comparatively lower. However, in case of a used car, the interest rate would bear direct relationship with the car’s model year. Higher the age of the car, higher will be the interest rate.
- Debt to Income Ratio
The amount of your down payment bears indirect relationship with your car loan interest rate. More is the down payment; lower will be the interest rate. The more money you owe, the harsher the loan terms will be. If the income is not mathematically able to sustain a larger loan, the lender will have less confidence that you will pay the debt back.
- Duration of the Loan
Loan tenureis one of the important factors in determining the interest rate. Longer the payback period, higher will be the interest rate. For shorter loan payback period, interest rates in comparatively low.
- Employment History
Interest rates are also dependent on the employment history. More stable the job is less will be the interest rate. Lenders are more willing to give loans to a person with full-time stable job than to a person with a part-time unstable job.
- Residential Status and Amount of Savings
Lenders are more likely to give loans to people who own their houses. They also look for the amount saved by the person as it gives them an edge and belief that the person is consistent, stable and has a general healthy financial responsibility.
Thus,before applying for a car loan, you must consider these factors. To be on a safer side, you can also seek help from a car loan expert in your area. They are the ones who possess all the updated information about interest rates and offers available.