Understanding Car Loan Rates

When shopping for a new car, you should be looking at the car loan rates as well as the overall price of the car. When you understand what goes in to figuring out a rate, you are more likely to get a better rate.

Your credit score is the biggest determining factor in the rate you get. A high credit score will make it easier to find a lower rate. Finance companies check the overall risk you present when it comes to borrowing. The higher the risk they see you as, the higher the rate you will get. The lenders do this to safeguard themselves. They will make more money with a higher rate, even if you default on the loan later on.

The terms of the loan refer to the amount of time you plan on taking to pay back the loan. Most lenders will allow you to pay back the loan over 24, 36, 48 or even 60 months. The longer you take to pay the loan back, the lower your monthly payments will be. The other side of this, however, is that if you choose a longer term you pose a greater risk to the lender, meaning the interest rate may be higher.

A down payment is a way to show the lender that you are serious about your purchase. The higher your down payment, the less of a risk you are. The lender sees this as an investment, and you are less likely to default on a larger investment. This can translate in to a lower rate.