Getting the best auto loan interest rates depends on several factors. However, it will take some effort to ensure that you get an ideal rate, but is it worth the hassle? The answer is yes, as you will see.
If you are taking out a loan for $5,000 at 6% interest for a 5 year term, then your payments will be about $97 per month, but you will have paid a total of $5,800.
However, if you can get a 4% interest rate you will pay about $92 per month and will have paid $5,525 once the 5 years is up; for a savings of $275 (or about 3 months’ worth of payments).
You need to look not only at the interest rate, but also the term of the loan. Using the same examples above, but with a 3 year term instead; the 6% loan
will cost you $152 per month, but you will only pay $5,475 over the 3 years, which will save you about $375 compared to a 5 year term. The 4% loan will add up to $5,315 with a monthly payment of about $148.
But what if your credit isn’t in good shape and the best auto loan interest rates you can find are around 9%, and you can only afford $90 per month? First, you should know that it is possible to keep the payment that low, but it will cost you
even more. You will need to take out a 6 year loan to keep your payments at $90 for a $5,000 loan at 9% interest. That’s great, right? A $90 payments sounds good, until you realize it adds up to $6,490! That’s nearly $1,500 extra, and most people can find better ways to spend $1,500.
So, how do you get a lower rate? The main thing lenders look at is your credit score and credit report. Your credit score is a single number that attempts to sum up how much of a credit risk you are.
Depending what your score is, they may consult your credit report to get more information. Your credit report lists all of your creditors, as well as other information about you.
Generally speaking, the lower your credit score, the more you will have to pay. However, if your score is too low, you may not be able to get a loan at all.
Therefore, it makes sense to do whatever you can to start improving your credit. It will take a while for changes to be reflected in your credit score, so get started as soon as you can.
You should also get free copies of your credit reports to see if they contain any mistakes. It happens often enough that you need to check. Dispute any errors you find.
Any improvement on your report should also raise your score…and having a higher credit score is the real secret to getting the best possible auto loan interest rates. Remember, getting a better rate can add up to a lot of savings over the course of your loan.