Average Interest Rates On Cars
Buying a car can be quite an uphill task. You have to research for the perfect car and that includes the color, horsepower and make, among others. However, the most important aspect of all is the interest rate of the car.
According to a survey, Americans are purchasing cars now more than in the last 10 years. The irony of all this is the decline in sales which can be based on a number of reasons. One of them is that people are retaining their cars more. You’ll find many cars built in 2005 on the road today.
Another reason is the car’s fuel efficiency which influences potential buyers. Gas prices have fallen to reverse this gain. In addition to this, Americans now own fewer cars per person, falling to 1.92 per person from 2.05 in 2006.
So, how do you get the best interest rates on your used and new cars?
The Effect Of Your Credit Score On Interest Rates
Your credit score will always come in handy in such situations. When searching for a car to buy, it is important to know where you stand in terms of your credit score.
You can get a free copy of your credit report from various credit bureaus such as Equifax, TransUnion and Experian. On the flip side, your credit score is just one of the hurdles. The credit score used by lenders is much different from yours.
Remember that your credit score varies from one bureau to another since the figure is arrived at from a series of numerical calculations. So, average credit scores lie between 300 and 850. A higher score is better. You can get your credit report from FICO or reporting bureaus.
The Auto Industry also has its own FICO score also known as the FICO Auto Score. This figure is calculated differently from the usual credit score and is not available to consumers. 300 to 850 is the range for a usual credit score, but the FICO Auto Score is between 250 and 900. This score will focus on your ability to repay your auto loan.
Interest Rates to Expect When Buying A New Car
The only information available to consumers is the interest rates for various credit scores. This list gives you a pretty clear picture of where you stand when you buy a used or new car.
The score starts from 300 all the way to 850. Also, interest rates increase as you go down the ladder. This means that if you have a lower credit score, you’ll pay interest rates as high as 19% for a used car. On the other hand, consumers with higher scores get the advantage of paying low interest rates as low as 5%.
Factors That Affect Interest Rates
Apart from your credit score, there are other factors that will affect the interest rates you’ll get on your auto loan. One of them is the loan duration.
You will pay lower interest rates if your loan will take a shorter period of time. Car loans take anything from 36 to 60 months to repay. So, if you get a loan whose duration is below 36 months, you could save your pocket from serious damage.
With respect to the above, you’ll need to tighten your financial belt. This is because repaying a car loan in less than 36 months means that you’ll have to pay more in monthly installments. While that may be a tough 36 months, you’ll end up saving more money.
There’s also the issue of down payments. This, however, doesn’t have much impact on the interest rates.
Lowering Car Loan Interest Rates with Pre-approvals
There are multiple benefits for getting a pre-approval on your auto loan. One is that you can start your hunt for lenders with low interest rates as well as land better deals. These savings may seem small at the moment but will go a long way in helping you service the car loan.
Another benefit is that you’ll have the upper hand when you step into the negotiating room at the dealer’s shop. Dealers are bound to take you more seriously and so they will move mountains to sell the car. One of these mountains is a low interest rate.
In addition, the dealer is likely to hand you a discount which leads to a lower loan amount for you which in turn results to lower interest rates on either an old or used car. As you can see, lower interest rates may also come from reducing your overall loan amount rather than from better APRs.
Lowering Your Car Loan Interest Rate If You Have Bad Credit
Having a poor credit score means you are doomed to pay higher interest rates than someone with a better credit score. However, that isn’t always the case. There are a number of ways you can use to get the interest rates down.
One is getting a co-signer. An association with a better credit than yours could help you get lower interest rates as well as get better bargaining power. A co-signer can be a close relative, spouse, parent or even a friend.
As much as this option could help you get low interest rates, it could also get risky in the process. Reason being that the co-signer is liable for the whole amount should you fail to pay up. In addition, their credit is bound to take a dive as it helps you get that auto loan.
Having a bad credit also means that you’ll have to pay a higher down payment. The down payment might not lower your APR, but the interest on the total amount will go down. So, you may want to buy a cheaper car in order to lower the interest rates.
Re-financing Your Car Loan For A Better Interest Rate
Re-financing a car loan can be quite expensive. So, not everyone can do that even though it’s much easier than refinancing mortgages and other loans.
If your car’s worth is higher than your current balance, you can opt to refinance your car loan if you also meet other conditions. Also, if your credit score is better than when you bought your car, you might want to refinance your loan.
Interest rates could also have taken a dive since you took your initial loan and this could be a great opportunity to refinance your loan. Further, if interest rates for your loan stand at over 6%, you can try and find lower rates which could see you save more on your interest rate.
Searching for the best interest rates for your car loan can be quite a chore. It is also worth mentioning that it is in your best interests to get low interest rates. If you follow the above steps to get low interest rates, you could end up saving on the monthly payments. This means that you can budget for your monthly expenses or even invest.