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Car Loan Rates: How Your Credit Score Affects Your Car Loan
Buying a new car takes a lot of work! You have to find one that you like, take it for a test drive, and then comes the dreaded negotiation phase with the dealership to get the best deal on the car. After negotiating your price, it’s time to determine your loans and their terms, which will significantly impact how much you pay for the car loan over the loan’s life.
How to Know if You Have A Good Credit Score
Your credit score directly influences the interest rate that is used to pay back your car loan. A high or good credit score helps you be keeping your interest rates low, while a lower score can result in a higher interest rate in the loan agreement. The interest rate used for your auto loan can fluctuate by up to 15%, depending on your credit score and whether your car is new or used.
Usually, your credit score is categorized into one of five categories: super prime, prime, nonprime, subprime, deep subprime. These categories use your credit score to let auto loan lenders know how reliable your score is and what they should charge you for interest on your auto loan. The average auto loan interest rates are shown in the table below.
| Average New Car Rate | Average Used Car Rate | |
|---|---|---|
|
Deep Subprime (579 or below) |
14.39% |
20.45% |
|
Subprime (580-619) |
11.92% |
17.74% |
|
Nonprime (620 – 659) |
7.65% |
11.26% |
|
Prime (660 – 719) |
4.68% |
6.04% |
|
Super Prime (720-850) |
3.65% |
4.29% |
Many different factors determine the interest rate assigned to your loan. The first is your credit score, and the number itself is significant, but so are the remarks. If you have a high score but many delinquents or missed payments, this can affect your rate. Your loan term is an essential factor, as well.
The longer the duration of your loan, the more risk acquired by the lender, resulting in a higher interest rate. In addition to the length of the term, your down payment is another important determinant in your rate. Putting more money down decreases the risk of the loan, resulting in a lower interest rate.
The status of your vehicle is another factor used to determine the rate of your loan. New cars are usually incentivized at dealerships, which means they likely charge lower rates than if you purchased a used vehicle.
Your debt-to-income ratio is another strong determinant of your interest rate. IF you have a large amount of debt, that can show lenders that you are a riskier investment.
Where You Can Get the Best Car Loan Rates
Who you lend from can also impact your score. There are a few different lender options to choose from when purchasing a new car. You can choose to take out a loan with the assistance of the dealership. Their finance department uses your information to shop around for a loan with the best terms – beware, the rates may be influenced by compensation paid to the dealer.
You can also get your loan from a bank or a credit union. Many national and some community banks offer auto loans, but the interest rates are likely not as low as those charged at credit unions.
Then, there are several online lenders, and loans comparison platforms with the convenience of searching multiple offers through a single application. Navigate in our website to find your best deal.