Factors That Will Help Decide Your Auto Rates |
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When you apply for a car loan, a lender must decide what kind of auto rates to offer you. There are a variety of factors a lender will take you to consideration when deciding what auto rates to offer you. These factors include: 1) Your credit score 2) Performance on past auto loans 3) Debt to income ratio 4) How much you want to borrow 5) How long you will carry the loan Together, these factors will tell a lender how much they should charge you in interest, because these factors will help determine what kind of risk you present. Let's take a look at each of these factors. First, your credit score will be the main motivating factor in what kind of auto rate you receive. It stands to reason that, the higher your credit score is, the lower your auto rate will be. Likewise, the lower your credit score is, the higher your rate will be. Secondly, if you have had an auto loan before, your performance on that account can help you get an edge or disadvantage when applying for a new auto loan. For example, if you have below average credit, you may score better auto rates if you have had a past vehicle loan that was paid off on time with no late payments reported. This will let the lender know that a vehicle loan is one of your top priorities and would likely come first if hard decisions had to be made. On the other hand, if you have okay credit, but have a less-than-perfect past payment history on a previous vehicle loan, it may convince the lender to give you a higher auto rate than you normally would have received. Third, your debt-to-income ratio can be important because the lender doesn't want to give you a loan that is gong to overextend your finances. You can have a great credit history but, if a lender sees that you are already taking on too much debt, they will be much less likely to offer you a loan simply because they understand that taking on more debt will increase the risk that you will have to default on something. Credit history is not everything, you also have to show that you can handle the payments that come with the loan. Your debt-to-income ratio also a part in another factor: how much you want to borrow. This is simply because, if you borrow more money, your new debt to income ratio will be higher. So, asking for a smaller loan may get you approved or get you a better auto rate, while asking for a larger loan may get you denied or get you a less favorable auto rate. Lastly, lenders will also take into account how long you want to carry the loan. Although this is a less significant factor, it will still be taken into consideration when deciding what kind of auto rate to give you. The basic reasoning is that the longer you have the loan, the greater the risk you will default. So, a shorter loan will usually carry a lower interest rate. That does not mean, however, that someone with outstanding credit can't get a great interest rate just because they want to carry the loan for five or six years. Basically, it all comes down to risk. If you are a less risky loan candidate, you will receive a better auto rate. It is important that, before you go to apply for a loan, you know what kind of rate your risk equates to. If you know beforehand what kind of auto rate you should receive, then you can prepare yourself for what kind of auto rates will be quoted and you will know when you are being taken advantage of. |
