You have too much to worry about to be bogged down by car loans that are designed to make a profit at your expense. While auto financing is an unavoidable reality for some, searching for the best car loan rates can keep your finances balanced throughout the year.
There are several different types of car loans including new car loans, used car loans, pre-approved loans and refinancing. GOBankingRates brings you the facts you need to find the right loan for your next car.
How Car Loans Work
When borrowers of new or used car loans finance a vehicle from a lender, the financial institution considers the car collateral. The car is used as security, in the event that the borrower defaults on the loan.
Used cars are more likely to wear down and become inoperable due to age, condition and maintenance issues, which is why some lenders increase the range of used car auto loan rates to protect themselves from this potential loss. On the other hand, newer vehicles - while still facing an immediate depreciation just driving it off the dealership lot - do not pose as great of a loss, should the borrower be unable to make good on repaying their auto loans.
How to Find the Best Car Loan
There are a number of factors that contribute to the car loan rates you'll be offered by a lender.
FICO Score: A person's FICO score is one of the most influential guides that lenders use to determine whether borrowers are risky to lend money to.
Auto Loan Term: Another way lenders protect themselves and ensure that they get their money back on time and in less time, is to provide lower car loan rates for shorter car loan terms and slightly higher rates for longer terms.
Vehicle Type: As shared above, the age of your vehicle can play an important role in what rate you're offered.
Down Payment: Having an adequate down payment can help do a number of things like lower the total amount you'll need to finance , and by directly affecting the auto financing interest rate, even with dealer financing.