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Variable Rate Loans for Autos: Which One’s Right for You
Variable rate loans for autos are a great way to reduce the cost of your auto loan payment each month. Variable rate loans are loans that have a rate that shifts in relation to the going market rate. Some auto lenders offer variable rate loans as a good way to attempt to keep payments low on auto loans, as consumers are offered the lowest possible loan rate at any given time. However, if the going interest rate increases, so does the rate on the variable rate loan, which means the customer will end up paying more in interest. In general, variable rate car loans are a great way to approach loan consolidation and often lead to lower monthly costs than do fixed rate loans. When choosing the right variable rate loans for yourself, it’s important to consider the different types available.
- Arbitrary interest increases: Search for loans with interest rates that increase according to the market, not due to some arbitrary rate increase scheme devised by the lending company. You do not want to end up paying more than the market rate or more than you would pay with fixed rate loans, as this was the reason for choosing the variable rate to begin with.
- Interest rate caps: Assure that the loan you choose has a reasonable interest rate cape (5-10%), as you do not want the company to continually increase their rates over the life of the loan.
- Short payoff time: Choose a variable rate auto loan with the shortest life as you can possibly afford. This helps assure that there is less time for the rate to fluctuate. Also make sure to read the fine print in the loan documents to determine if there are early payoff penalties (it’s best to avoid these).
In the end, you should pick the variable rate loan that best fits your budget and has a feasible time schedule. Your goal should be to pay as little interest over time as possible.
