Securing A Low Car Loan Interest Rate
Lending is a risky business. For car loan interest rate, they give out tens of thousands of dollars per person hoping that these individuals will pay them back as per their agreement. Most will adhere to the contract but others won’t. Some may try and fail. In order to make it worth their while to incur this risk, they make borrowers pay interest. This makes the whole operation sustainable for them but it can be a burden on the car buyers. Loan applicants should understand the factors that affect car loan interest rate and try to find the lowest deals available.
If you compare the rates for new and used cars, then you will notice that the numbers for the latter are slightly higher. That’s because lenders prefer giving loans for new cars. These have more reliable parts so they are unlikely to break down easily. They have a more predictable depreciation rate and resale value, in case the borrower fails to pay and they have to seize the asset. In contrast, used cars can be a mixed bag with customer handling being a major determinant of actual condition.
Longer terms mean lower monthly payments but larger total payments over the years due to higher interest rates. Shorter terms mean having to pay more per month yet you actually pay less in total because you enjoy lower interest rates. If the car that you want is forcing you to max out your budget even at 84 months, then perhaps you should consider buying a more affordable car that will let you finish payment in 60 months or less comfortably.