How does car loan interest work?
When taking out a car loan, as well as making regular repayments to pay off the loan amount, you also need to pay interest on the loan.
A key component of a car loan, the interest rate, is important to consider when applying for your loan. It’s important to understand how your car loan interest is calculated, what factors can impact the interest rate, and how you can lower your interest rates.
When you borrow money for a car loan, you will be required to pay back that loan, along with interest. Interest is what you pay to borrow money for your car loan. It is shown as per annum and is calculated based on the outstanding loan balance.
There can be a significant difference between the highest and lowest car loan interest rates available. Do some research to compare what rates various lenders are offering. Though not everyone will qualify for the lowest interest rate, always get the lowest rate you can, as it may save you a significant amount of money.
Most lenders will offer a fixed rate. A fixed rate is locked in at the time of purchase, which means your interest rate remains the same for the duration of your loan term.
Factors that impact an interest rate
Numerous factors can impact interest rates on your car loan. These can include the lender, the loan amount, the age of the vehicle, and your personal circumstances such as your financial status and credit history.
If you have a good credit rating, you will more likely be able to get a lower interest rate on your car loan. Even if you currently have a bad credit score, you may still be able to get lower interest rates if you work on improving your credit rating.
Showing evidence of solid years of saving will show your lender you’re more likely to keep up with repayments. The more reliable you seem as a borrower, the more likely you will be able to get lower interest rates on your car loan.
The length of your loan can impact the interest you pay. The shorter your loan term, the less interest you’ll pay overall. Sometimes with a longer loan term, you can also be charged higher interest, as it will take longer for the lender to get the total loan amount back. Pay as big a down payment as possible, this will help lower your interest rate, as it will also lower your loan amount and shorten your loan term.
You can buy a new or used car with a car loan, though keep in mind that sometimes a newer car will have lower interest rates than a used car.
Interest rates are constantly changing, so sometimes you can simply be subject to market factors.
Get the best rate you can
Interest rates can add a significant amount on top of your loan cost. Even the smallest difference in interest rate can save you thousands, so having a good interest rate on your car loan is crucial.
Compare the rates offered by different lenders, as there can be many car loan options with different rates. A car loan calculator provides a guide of your loan repayments and you can also get an idea of your interest payments. This can be a helpful tool when comparing various loan options.
360 Finance specialists can help you get the best rates on your car loan. With access to numerous lenders and finance options, we can help find the best option for you.
Contact the team at 360 Finance to get the lowest rates on your car loan.