Your credit score is a simply 3 digit number that represents the sum of the information contained on your credit report. It helps lenders to decide your credit worthiness. Your credit score will be used to determine your approval for a loan and how much it will cost you, in other words the Interest Rate you will be approved at.
High-Risk = High Interest Rate
Here a couple of things that also affects the interest rate on your car loan:
In most cases shorter term car loans tend to have a lower interest rate. The risk factor is lessened by term of the loan; less time for things to change in your life that make an impact on your ability to pay. You should note that the shorter the term the higher the monthly payments.
- New Car vs. Old Car
It is a common practice in the automobile financing industry to offer lower interest rates for new cars and higher interest rates for used cars. Credit Unions might be an exception to this rule. Credit Unions tend to offer the same rates to both new and used car financing, but their lending criteria tends to be more astringent. A Good Credit Score representing low-risk it far more important to a credit union.
- Geographical/Region of the country
Automobile financing through banks and other financial institutions offer different interest rates in different parts of the country. Borrowers with similar credit profiles and income etc… might qualify at the different interest rate in the different parts of the country.
Please note, these are the usual things that affect the interest rates when borrowing through a bank or other financial institution, automobile financing through the dealership may work differently.
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