Although car loan rates vary depending on a customer’s financial situation, there are a few factors that can affect a person’s rate. These include his or her income, credit score and other factors. When people aren’t happy with the current rates they have on a loan, they look into auto refinance rates from other lenders. According to Lantern Credit, “Essentially, auto loan refinancing is taking out a new loan to pay off your existing car loan.”
Reasons Your Car Loan Rate Might Be High
Before you look for a car loan, it’s important to know what you’re getting into. You must understand these factors to determine if you’re a good candidate for a loan.
1. Credit Score
Credit score can affect the interest rate that they’re charged on a car loan. Auto loans typically use a score of around 700 to determine candidates. Although this doesn’t mean that they won’t approve you if your score is lower, it does mean that they’ll probably give you a higher interest rate.
Income is a factor that can affect a person’s chances of getting a loan. Having a full-time job that allows you to make payments every month can help determine if you’re a good candidate. However, it’s also important to note that depending on the type of business that you have, the chances of getting a loan are higher for those who have a registered business.
3. Length of Term
The length of a car loan can also affect the interest that it charges. A 36-month term is typically the most common type of loan, while a 60-month term is also available. When it comes to choosing a term, it’s important to consider how much you can afford to pay each month.
4. Trade-In or Down Payment
Putting a big down payment or trading in an old vehicle can lower the total interest that you’ll be charged on a loan. For instance, if you have a trade-in value of $7,000, and the new vehicle that you’re planning on buying costs $20,000, you’ll only need a loan of $13,000.
5. Pre Approval
If you’re applying for a loan at a bank or credit union, try to get pre approved. This process will run a soft check on your credit score to see if you’re a good candidate. It can also help determine the interest rate and term that you’ll be offered. Getting multiple quotes from different lenders can help you compare the interest rates offered by different companies. While you are negotiating with the dealer, it can also give you leverage.
If you’re not able to get a loan because of the interest rates you’re offered, but would still like to drive a car, then buying a vehicle with cash can be a great alternative. It doesn’t involve monthly payments and doesn’t have high-interest rates. Alternatively, you may be able to refinance your car loan later on for a better interest rate if your financial situation changes.