One of the most financially overwhelming parts of purchasing a new car isn’t looking for the right dealer or vehicle. Instead, it’s signing up for a car loan that you’ll have to make monthly payments on for your entire loan term. This monthly car payment is daunting for new car buyers. However, there are some things that you can do to lessen the financial burden of your auto loan. Since many factors determine your interest rate, it’s worth your time to find ways to get a lower rate so that your payments are manageable. Keep reading for more information on auto loan interest rates and what you can do to get your new vehicle at an affordable price.
Consider the average rate.
Before you’re ready to sign off on your auto loan rate, you should read about the average interest rates for the current market. By understanding the average rate, you can gauge if you’re getting a fair deal or not. As reported, the average interest rate for a new car is 5.61%. However, this number varies for used cars where the rate is upward of 9.65%. Even with this percentage in mind, you have to know that auto loans vary based on an entire host of factors. That’s why you need to learn these factors so that you can get the best deal and the lowest rates for your monthly car loan payment.
Understand what affects rates.
As mentioned previously, there are personal factors that affect your interest rate and overall payment amounts. First up on the list is your credit score. Your credit score is arguably one of the most vital components to getting a better rate. If you have a good credit score you will have a much lower interest rate resulting in lower car payments. However, if you have a poor credit score you aren’t considered reliable, therefore you’re going to have a higher rate. Another factor that contributes to your rate is the down payment that you make on the car at the beginning of the loan. Your down payment is the first payment you can make on your new car, and making it as much as possible is integral to lowering monthly payments.
The kind of car you’re purchasing also has a lasting effect on your payments. This is simply because of the price of the car. For example, if you’re purchasing a high-end, luxury vehicle you’re likely making your loan amount go up instead of choosing something that’s middle of the line keeping the loan amount more reasonable. Last but not least, is the loan term that you choose. Generally speaking, auto loans are offered at 36, 48, 60, or 72-month terms. The longer loan term that you choose extends the amount of interest that accumulates leaving you with a higher car payment for a longer period of time.
Compare different lenders.
Now that you’re aware of the variety of factors that can affect your rates, you might be feeling a bit overwhelmed. However, it doesn’t have to feel complicated to find a lender that will get you a decent rate. A great tool to utilize while searching for your auto loan is this car loan calculator. Payment calculators like this one allow you to type in your information like the loan amount, down payment, potential interest rate, and loan term. With all of this information, you can find out exactly what your monthly car payments will be. This self-help tool is incredibly useful when preparing you for your car payments instead of being unaware of what kind of payments you’re getting yourself into.
Overall, by preparing for your new auto loan you can lessen your financial burden. With this knowledge of how to lower your rates along with helpful tools like a car loan calculator, you’ll have peace of mind that you’re getting the best deal from any lender. In turn, you can save some money in the meantime and focus on enjoying your new car.