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Auto Loan Interest Rates and the Factors That Affect Them

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Ever wondered why car buyers in Portland get different rates for auto loans? There are a number of factors that lenders consider when they decide on the rate that a particular borrower will get. Listed below are the five main considerations.

Credit

Your credit is the key factor that determines your rate. A clean credit history and a high credit score will give you a low rate because the lender takes on less risk by lending to you. Interest helps protect creditors from losses, and creditors are more likely to suffer from losses if they lend to someone who is less creditworthy. A borrower’s creditworthiness is assessed based on his or her credit report and score.

If you have damaged credit now, take time to repair it first before you apply for auto financing. An increase of a few points on your credit score can make a huge difference when you do get approved.

Down Payment

The more money you put down on the auto purchase, the lower your rate. A generous down payment tells the lender that you are a serious buyer, one who is invested in the purchase. If you have spent a considerable amount of money on a vehicle, the lender will be convinced that you are less likely to miss payments; since you are less likely to default, there will be less risk in lending to you. Also, having a down payment means borrowing less money, so you will be charged less interest.

Giving a down payment is a good way to lower your auto loan rate, so save money for a deposit before you buy a car.

Loan Term

The length of the loan also influences the rate. A longer loan term may lower monthly payments, but it increases the interest rate charged. The reason why lenders charge a higher rate for longer terms is that there is more risk: the longer it takes for the debt to be repaid, the more likely it is for the borrower to default. Choose the shortest term you can afford to save money on interest.

Lender

Your source of auto financing dictates what kind of rate you will get. While some creditors can afford to charge lower rates to borrowers, others cannot.

Credit unions are considered as an ideal source of auto loans because their interest rates are often the lowest. They can charge less interest because they are non-profit: they exist not for revenue but for their members.

On the contrary, dealership financing often comes with higher interest rates because dealers profit from arranging loans for car buyers. The rate a car buyer gets is marked up so the dealer can earn some money. However, dealers can offer zero-percent financing, but only to those who meet their requirements.

To get the best rate possible, consider all your lending options. Shop around to find the lender that will offer you the best deal.

Vehicle of Choice

The vehicle you pick to buy affects the auto loan rate. Is it new or used? New-car rates are lower than used-car rates, though new-car prices are higher than used-car prices. The value and model of the automobile will also influence the interest.

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