What Factors Can Affect My Interest Rate When Applying For
What Factors Can Affect My Interest Rate When Applying For Auto Loans With Bad Credit?
Everyone knows that your personal credit score plays a huge role in determining what interest rate you qualify for through prime lenders. But what if your credit is less than perfect? Once your credit score gets below a certain point these prime lenders will not be able to help you any more. At that point you will need to turn to sub prime lenders for your auto loan needs. These lenders have higher rates but they look at your whole financial picture not just your credit score. Here are some factors other than credit that can effect what rate you get approved for when applying for auto loans with bad credit.
1) Year Of The Vehicle-Used cars will have a higher rate than newer cars. The older the car is the higher the interest rate will be. Auto loans are secured loans with the car being the collateral. As the car ages and gets more miles its value will drop leaving the bank with a loan out there for more than what the collateral is worth or “unsecured”. The lender will charge a higher rate to collect more interest upfront and hopefully minimize that risk.
2) Length Of The Loan- Interest rates can vary greatly for different lengths of time. The longer the loan the higher the rate will be. Sometimes you may want to go a shorter term to obtain a lower rate but the lender will not be able to approve you for that term due to the “debt to income” ratio guidelines they have to follow. To save the most money and get the lowest rate always try to go the shortest term the lender will allow and that you can comfortably afford.
3) Cash Down Equity- When you put a large down payment towards your loan you greatly reduce the risk for the lender by putting them in an equity position. If for some reason you defaulted on the loan and they had to repossess the vehicle they would have a loan out there for much less than what the collateral is worth. The net result to them is no financial loss once they sell the vehicle at auction. Many sub prime lenders will offer an equity discount on their rates for this reason.
4) Amount Financed- Most lenders will have a minimum amount to finance guideline. This amount is usually somewhere between $5000.00 and $7000.00 depending on the lender. If a loan is below that amount it is very difficult for a lender to make money on it. If they do approve a loan below their minimum amount guideline it will usually be at their highest rate. Keep this in mind when shopping for an inexpensive vehicle. You may end up paying a higher rate just because the loan amount is low.
5) State Guidelines- Many states have maximum rate cap laws. This can affect what rate the lender charges. Check with your specific state to find out what laws are in place where you live.
As you can see there are other factors that can affect the rate you get. It is always best to apply online to a couple lenders to make sure you are getting the best rates and terms you can.