The car loan interest that you pay depends on several factors. In case you wish to purchase a car and you are in search for the best interest rate, you might be interested in knowing how your credit score affects the loan terms that are appropriate for you. Obtaining car loans with lower rates are easier when you know the factors that directly influence the interest rates the lender would offer for you. Through this, you are able to alter the factors that you can control and therefore reduce your car loan rates. In case you are eager to learn more as to how the interest rate of a car loan is calculated, this article would explain some of the factors involved.
The lender
The loan provider or the lender has something to do with the car loan interest rates tied to the loans offered to you. Each lender has their own way of calculating the interest rate placed on the loans they offer. In order to find the best rates, you need to request for loan quotes from different lenders so that you can compare these.
The amount of down payment provided
The down payment you provide when you obtain a loan to finance your car has a direct effect on the interest rate and the payments you would be paying. The down is deducted from the principal amount you borrowed from a lender and the interest rate is usually calculated based on the remaining amount that you need to pay all throughout the loan term. This simply means that a higher down payment could result to lower interest rate.
The credit score you own
Most lenders use your credit score in calculating the interest of the loan offered to you. When your credit score is high, lenders are willing to charge you with lower interest. If your credit score on the other hand is low, you might probably be charged with higher interest since lenders would view you as a financial risk with a greater tendency of running away from your financial obligation.
The car loan term
Long term loans are usually charged with higher interest since you are given a longer period to pay the loaned amount off. Short term loans on the other hand are charged with lower interest since the loan is paid-off in a shorter period and the monthly payments are higher compared to long term loan