How to compare auto financing rates

It is important to compare the auto financing rates that you obtain and those the others have. Through this you are able to determine the reason why you might be paying more or less compared to them. Since auto financing rates are affected by different factors, you can start the comparison by looking into the following:

1. Your credit score

The credit score is considered as the most important basis used by banks in granting loans. When your credit score is higher, you might qualify for more loans with lower interest rates tied to it. However, when your credit score is lower there might be a limited number of loans that you can qualify. In addition to this, you don’t get lower interest compared to those with good credit score is getting.

In the event that you would try to compare your loan rates with someone, consider his credit score as one of the reasons why his rate is different from yours. Other factors that has a great influence on the rate includes your income, the length of time that you have lived in the location, and the current debts you have.

2. The loan terms

The length of time that the lender allows you to pay for the loan or the loan term also affects the rate of loans you have compared to that of others. The most common loan terms offered by lenders includes the following:

  • 3 years or 36 months
  • 4 years or 48 months
  • 5 years or 60 months

The longer your loan term is, the lower your monthly payment becomes. However, long term loans might cause you to spend more than what you should due to the interest. Lenders view long term loans as high risk compared to shorter ones. Thus, they place higher interest on it.

3. Compare rates from different sources

You can also compare the loan rates offered by banks, credit unions, and online lenders. Although banks are considered to be the most preferred loan source due to their competitive rates, there are lots of instances where other lenders such as those connected to car dealers that offer better rates. In order to get the best out of your comparison, try making a chart and pre-qualify for a loan with a lender that offers the best rate.

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