What Determines Interest Rates on Car Loans?

  1. What Determines Interest Rates on Car Loans?
What Determines Interest Rates on Car Loans?

Car loan interest rates can vary greatly, so what gives?

You may have wondered, "What factors influence the interest rates on a car loan, and what can I do to minimize them?" It's a valid question, and one that we completely understand. To answer this question properly we first need to break down the variables into two separate categories: external variables and internal variables.

Factors Outside of Your Control

Auto Market graph

Market Conditions

Despite your greatest efforts, the market is going to do what it will with or without you. Save market trends and influential shifts for the Wall Street brokers and business tycoons.

Now for the variables that you can control...

Factors Within Your Control

Credit History

Your Credit History

Undoubtedly the biggest influencer on your car loan's interest, having a good credit history will help keep the interest on your auto loan low. Have poor credit and not sure how to improve it?
Check out 4 ways to improve your credit.

New or Used Cars

New or Used?

Is the car you're looking to buy new or used? New car loan interest rates vary considerably from used car loans. There may be some sticker shock with a new car, but you can save a lot in interest.

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Loan Duration

Longer loan terms can help lower the interest rate of your car loan, but will typically increase the total amount you pay. Whether you'd like the lower monthly payments or to pay more upfront is entirely up to you.

Debt to Income Ratio

Debt to Income Ratio

Current Gross Income x 28%-36%
- Total Debt (loans & credit cards)

What's the number? That's your debt to income ratio, and it's another factor in determining your auto loan's interest rate.

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