Chances are that owning a car is not a luxury, but a necessary means of transportation on which you depend.
Unlike the "Jonses," many times the type of car you purchase is based on the auto loan rate you qualify for, not the latest high tech model from your favorite luxury manufacturer. If you are in the market for a new car, then knowing what factors affect your auto loan rate can help you figure out how to get the most bang for the buck.
FICO Scores
The greatest contributing factor to what car loan rate you will be charged is your FICO score. Developed by the Fair Isaac Corporation, your FICO is a way for a lender to determine your overall financial health. The scores range from 300 to 850 and the higher the FICO score you get, the less you need to pay to borrow money. Lenders consider those with higher credit scores a lower risk and are generally happy to offer enticing rates for a business relationship. The opposite stands true for those with a low credit rating.
Down Payments
Another factor that may contribute to the auto loan rate you qualify for is how much of a down payment you are willing to put down on a vehicle. Those with less than spectacular credit can certainly benefit from this insider trick. If you have anywhere from a 20%-25% down payment, despite your credit history, lenders may weigh that action into the bottom line car loan rate. The more of your car that you personally own, the less likely you are to default on the loan as you are putting your own invested money at risk as well.
Auto loan rates may also vary by the city or state you live in, the length of the loan and what lender you choose to work with. Regardless of how your auto loan rate is determined, your best strategy is taking the time to research and get pre-approved for your car loan before visiting your car dealer.
