What Are Car Loans Rates

A car loan rate is the interest rate offered to a borrower who seeks to finance the purchase of a vehicle. Rates vary depending on the borrower's credit score and payment history, the type of loan provider, the lender's policy and criteria, and other factors. Financial institutions usually offer auto financing at fixed or variable interest rates.

The financing you are offered also depends on whether you are buying a new or used vehicle. The financing on new car loans is slightly lower. The difference of 1 to 3 percent amounts to savings of a few hundred dollars. Apart from savings, there are other benefits to buying a new vehicle. First, you will likely have the latest convenience, comfort, and safety features. Second, there are no doubts about previous accidents or mechanical problems, and the vehicle comes with a comprehensive manufacturer’s warranty.

While rates are higher, used cars are significantly cheaper than new vehicles, and the theft and comprehensive insurance costs are likely to be less. Second, the buyer may get a luxury model for about the same price as a new one. The downside to buying an old vehicle is that they often have questionable repair and maintenance history. Lenders are unlikely to offer a zero percent on a used automobile. Promotional rates are available to those who are buying a new vehicle. Lenders still require excellent credit, and you will need a credit score of 720 or higher. car loan rates

What about zero-percent financing? Free money is suspicious, and such offers usually come with strings and conditions. To begin with, lenders that provide low-cost financing usually require sparkling credit. Aside from an excellent or very good credit score, there are many ways in which zero-percent loans can trip up borrowers. Most credits are offered with a term of 3 years or less. This means that you will be making hefty monthly payments if you get approved. Say you are borrowing $18,000 to finance the purchase of a new vehicle. At an interest of 0 percent, you would have to shell out $500 in monthly payments. A 5-year loan at 4 percent, with monthly payments of around $320 may be more manageable. Besides, some lenders require that the buyer makes a down payment of 25 percent. With other financial deals, the down payment can be 10 percent or lower, but it is not recommended to cut it down to a minimum. It will take you much longer to build equity.

Even if you qualify for low-rate financing, auto loans are not easy to compare or categorize. They are made by different financial institutions and tied to promotional offers in many cases. This is why, buyers often benefit from comparison shopping. Car dealerships, for example, feature a smorgasbord of incentives, such as extended warranty offers, generous maintenance agreements, and cash rebates and other perks. When dealerships arrange auto financing, they earn some type of compensation and may pass it to the buyer. This can be in the form of a lower interest or a lower price. Dealerships have access to money at wholesale rates of interest, which they mark up and pass to customers. The financing you get may be about the same as the rate you can arrange by yourself. Banks and credit unions, on the other hand, have a greater flexibility, especially if you are a creditworthy and valued customer. Credit unions offer even lower interest than banks, with rates being about 1 percent lower.