Are you looking for a car loan with the lowest interest rate possible? Several Canadians don’t know that multiple factors are considered when it comes to determining interest rates on financing. Your interest rate on an auto loan will depend on your credit history. However, credit isn’t the only thing that will affect what you qualify for.
The next time you’re shopping for low interest rates, keep these three points in mind.
- Term Length
A car loan with a long term lowers your monthly payments, however it’s important to remember the longer you have the car loan, the longer you pay interest rates. With the average length of term for an auto loan being more than 60 months, your interest rate costs can spike up quickly.Ensure that you’re calculating how much you’ll end up spending at the end of your term – you never know, you might be able to save with a short term and higher interest rate.
- Make and Model of the Vehicle
If someone were to default on payments to a new vehicle, lenders could repossess the new car and use it for resale. However, if a person were to default on payments to a used vehicle, lenders would find it hard to resell the car after it was repossessed. It’s easy to see how big of a role interest rate plays when talking about the age of the vehicle.The older the car, the higher the interest rate might be. If purchasing a used vehicle is your only option, focus on rebuilding your credit score so that you can refinance in the future.
- The time you have been using the credit for
If you’re new to building your credit and have very little history, this could affect your interest rates when signing up for a loan. An unsecured loan requires no collateral whereas a secured loan does. In the case of applying for an auto loan, if you have no history of paying back a secured loan (where the vehicle is used as collateral) this might pose a risk to lenders. Car loans are a great way to add more credit mix to your history.
If you can successfully make on-time payments to your creditor, the chances that you’ll be able to trade-in your vehicle for one with lower rates will be good. Not only will this benefit your wallet, but it will look great on your credit history too.
Credit scores go from 300 to 900; if you have a score above 650 you’ll likely qualify for lower interest rates compared to someone who has a score below a score of 650. According to Loans Canada, the average credit score in Canada ranges from 620-679. Keeping this mind, it’s important to understand the other factors that might influence your interest rates on financing.
If you are ready to drive and build your credit at the same time, see how Canada Auto Experts can help you with our free, online and secure pre-approval application. Alternatively,you can call 1-855-550-5565 to talk to a credit specialist today!