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How Auto Loan Rates are Calculated


Factors Considered to Calculate Auto Loan Rates

When a potential lender evaluates you for an auto loan, there are a variety of things that they take into consideration. Of course, the first factor that affects the outcome of that decision of whether or not you get the loan, for how much, and at what rate, is the lender. Each has a different formula in which they plug your factors to decide your verdict. Here are some of those factors:

  • Your credit history. If you have been evicted, had previous major purchases repossessed, or filed for bankruptcy within the last seven years, you may not get the car loan.
  • Your credit score. If your credit score is less than 680, you will not qualify for the best car loan rates.
  • The type of vehicle you are buying. Used and new cars will incur different rates. Different makes and models incur different rates, as well.
  • The market. Average market rates fluctuate daily.
  • The length of the loan. Longer loans often have higher interest rates. Zero percent financing is available, but usually on loans of 24 or 36 months.

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How do I get good car loan

rates if my credit isn’t perfect?

If your credit isn’t perfect, there are many ways to whittle down those car loan rates until they hit a number you can deal with. Your first option is to wait to apply for your car loan until you’ve raised your credit score. Six months of paying down your debt, fixing mistakes on your credit reports, and paying outstanding debts will do wonders.

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Here are a few other things you can try:

  • Wait for the state of the economy to decline. When that happens, so do loan rates.
  • A good driving record can help convince a lender to shave a percentage point of your interest rate.
  • If you own a house or have owned a car in the past, this will make you look like a better risk to the lender.
  • By maintaining steady employment, you may qualify for lower rates on your car loan.
  • Getting pre-approved by a sub-prime lender will help you get a lower rate.
  • Get a co-signer.
  • A huge down payment or a wad of cash never raised anyone’s rates, either.

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