Unless you have enough cash lying around to pay for a car in full, you will likely use an auto loan to finance the purchase. You make monthly payments to repay the loan over time. The terms of an auto loan depend on various factors, including your income and credit history.
What affects your interest rate?
Many factors can affect the interest rate on a car loan. Here are some common ones:
- A major factor is credit score. It informs the bank how much risk they are taking by lending to you.
- Another is the loan term and, generally, shorter loans offer lower interest rates as the bank gets paid back quicker. However, a short loan term might mean higher monthly payments.
- A vehicle’s age also plays a part. New car loans typically have lower interest rates than those for used cars.
- Money down counts, too. You may get a lower rate by showing your commitment to the purchase with a sizable down payment.