Auto loan interest rates are a very influencing factor when deciding whether to purchase a car with a particular loan or settle for something like low rate car loans. Usually, it is recommended to settle for loans which have a fixed interest rate. But you should take into consideration that not all of these loans which have a fixed interest are the same. There are many factors affecting the interest rate and as an individual, you should know the secrets of choosing the right loan for you.
Amount of Loan
One of the factors that affect an auto loan interest is the amount of loan that you will be applying for. Most times, for the loan to be enticing, loan providers give lower interest rates to higher loan amounts. What you do not know about this practice is that when you acquire a big loan, you typically pay it longer than a smaller one due to higher monthly amortization. In the end, when you total the interest you paid on the bigger loan and compare it to the amount you will be paying for the smaller loan, it will be almost the same.
Type of Loan
An auto loan interest is affected by the type of loan you want. Most loans that are attractive to individuals are fixed rate loans. Although, most of them vary in interest rates as well. The types of loans with a fixed auto loan interest rate are dealer financing, pre-qualified loans, home equity loans and the like. It should be noted that home equity loans carry the lowest rate of all these because you are actually assigning your home as collateral. This gives the lenders the right to foreclose on your property in case of non-payment. There is also another type of loan which carries a low auto loan interest rate – variable rate loans. They usually offer lower interest rates on loans with declining balance interest rates.
Auto loan interest rates are also affected by the borrower’s credit score. You should be aware that those people in bad credit standing are offered higher interest rates. This money invested by the loan provider is considered high-risk because of the possibility of not getting paid. Usually those in good credit standing get the best auto loan terms and the prime interest rate.
Type of Car
Another secret you should know about an auto loan interest rate is how it differs depending on the type of car you purchase. Buying a new car entails a higher interest rate due to of the amount of the loan, while the interest rate when purchasing a second hand vehicle is lower.
Finally, the last factor that affects an auto loan interest rate is the provider of the loan. Of course, when you go to individuals or loan sharks, they charge higher interest rates compared to other providers. Banks and other financial institutions follow the interest rate that is approved by the government.
An auto loan interest rate can make or break you. If you are charged with a large amount of interest, there is the possibility that you will find it more difficult to meet each payment, leading to financial problems for you. On the other hand, if you can choose the right amount of interest, everything could run smoothly.