Demystifying New Car Loan Rates

Demystifying New Car Loan Rates

If you are someone about to begin seeking out a loan for the purchase of a new car you are going to see that there is a wide array of interest rates being offered. Why are new car loan rates all over the map? How is it that one person can get a loan at 3.9% and someone else is hit with a staggering 6% or more?

Generally all loans are shaped by a few individual factors connected directly to the borrowers. For example, the amount of the down payment, the credit history, and the current income will all have an effect upon rates and the terms offered. Additionally, the shorter the term of a loan the lower the interest rate charged.

Those who are fortunate enough to get the lowest new car loan rates tend to be people with good to excellent credit histories and scores. This is not to say that these are only people in higher income brackets because that is not the case, it is simply a matter of a consumer having no history of late payments, maxed out credit cards, or defaults on any bills or debts. A “clean” report coupled with a high score is usually the simplest way to get the best rates.

Additionally, the borrowers that get the best rates tend to also have a bit of cash to offer as a down payment on the loan, and they might also elect to use a much shorter term, such as three years, to pay off their debt. Obviously, not all consumers will meet such criteria, and this is usually the reason that rates can vary quite dramatically from person to person.

Those who receive far less favorable new car loan rates tend to be consumers with damaged credit or a low score. This might be due to everything from bankruptcy or foreclosure to lots of defaults on credit accounts, and anything that the individual can do to improve their report and resulting credit score must be done immediately.

In addition to working very hard at cleaning up the credit report, a consumer with poor credit should also try to save some money in advance of obtaining the loan. This is because, as demonstrated a bit earlier, lenders tend to offer better new car loan rates to those who can offset some of the risk by presenting a bit of the cash at the time of purchase.