Buying a car is a big deal. Aside from purchasing your first home, buying a car is one of the biggest purchases you may ever make. Considering how long you will be using the car it is decision that you do not want to take lightly.

Choosing where to get your auto loan is a big deal, especially since most people need financing in order to be able to purchase their first car. You will definitely want to check out the best auto loan providers. Financing makes the decision of how to buy even more complicated. The rate of your loan will actually determine how much more you pay than the asking price as well as how much money you have spend each month.

The average rate nationally in the US for an auto loan is 5.27% on a loan lasting 60 months. However, there are several factors that will affect your loan including your credit score, the length of your term, and the age of the car.

How Credit Score Affects Your Loan Rate

Prime loan applicants are those who the banks consider extremely low risk for loaning money to. These are people who have a credit score at 760 or higher. These people are rare, but they are able to get approved for extremely low interest rates. Sometimes interest rates at 3% if not a little higher.

For people who do not have stellar credit scores, interest rates will go up. This is because lenders consider these people to be a slightly higher risk than the people who have stellar credit. Lower credit scores could warrant an interest rate as high as 20%. While this might not be ideal, it is what the lender needs to feel confident lending these scores money to fund the purchase of a vehicle.

How Term Length Affects Rates

Depending on the age of the vehicle, down payment, and other factors lenders will offer you various lengths of terms for the loan for your vehicle. These range from 24 to 72 months. Generally speaking, the sooner you agree to pay off the loan, the lower your interest rate will be on the term of the loan.

Typical loans are 63 months. However, more and more lenders are offering options of 72 or 84 months to customers. The benefit the customer may see on a longer term loan is a lower monthly payment. While this may not be ideal for everyone, some customers see a lower monthly payment as a huge benefit.

Final Thoughts

There are many factors that affect the interest rate of your loan. Regardless, it is nearly impossible to pin this rate down without speaking to a few lenders regarding your particular situation. Understanding how credit score, vehicle age, and length of terms affect the interest rate on your auto loan will help you to make an informed decision. Best of luck as you research possible lenders and begin to look for the next vehicle of your dreams.