3 Things That Can Impact Car Loan Interest Rates
Are you shopping for an auto loan and hope to get the lowest interest rate possible? A lot of Canadians don’t know that multiple factors are considered when it comes to determining interest rates on financing.
Your interest rate on an auto loan will depend largely on your credit history. Credit scores range from 300 to 900; if you have a score above 650, you’ll likely qualify for lower interest rates compared to someone who has a score below a score of 650.
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However, credit isn’t the only factor that will affect what you qualify for. Considering this, it’s important to understand the other factors that might influence your interest rates on financing. The next time you’re shopping for low interest rates, keep these three things in mind:
1. The length of term
Having an auto loan with a long term means your monthly payments will be smaller, however it’s important to remember the longer you have the car loan, the longer you pay interest rates. With the average length of term for an auto loan being more than 60 months, your interest rate costs can add up quickly.
Ensure that you’re doing the math on how much you’ll end up spending at the end of your term – you never know, you might be able to save with a short term and higher interest rate.
2. The make and model of the vehicle
If a person were to default on payments to a new vehicle, lenders could repossess the new car and use it for resale. However, if a person were to default on payments to a used vehicle, lenders would have a difficult time reselling the car after it was repossessed. It’s easy to see how big of a role interest rate plays when it comes to the age of the vehicle.
The older the car, the higher the interest rate might be. If buying used is your only option, focus on rebuilding your credit score so that you can refinance in the future.
3. How long have you been using credit for?
If you’re new to the credit world and have very little history, this could affect your interest rates when applying for a loan. An unsecured loan does not require collateral whereas a secured loan does. In the case of applying for an auto loan, if you have no history of paying back a secured loan (where the vehicle is used as collateral) this might pose a risk to lenders. Auto loans are a great way to add more credit mix to your history.
If you can successfully make on-time payments to your creditor, the chances that you’ll be able to trade-in your vehicle for one with lower rates will be good. Not only will this benefit your wallet, but it will look great on your credit history too.
Are you ready to rebuild your credit and get driving today? See how Canada Drives can help you with our free, online and secure pre-approval application.
