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Auto Loan Rates

How to get the best auto loan rates



When purchasing a new or used vehicle, one of the most important things that need to be taken into consideration is the auto loan rate. The auto loan rate is important because, all other factors being equal, the lower the loan rate, the lower and more affordable your monthly payment will be. Auto loan rates are expressed as a percentage and are set by the bank or lending institution that originates the vehicle loan.

Once the bank approves your auto loan, it sets auto loan rates based on a number of factors: First of all, the lender looks at your FICO score. This is a three digit number that is tied to all threww of the major credit bureaus -- Equifax, Experian and TransUnion. The bank views at least one of these credit bureaus and may look at all three. The credit score that it sees is usually a custom score that is "vehicle weighted." That is, it places more importance on your vehicle payment history than a regular FICO score does.

Secondly, the lender looks at the term of the auto loan. Term refers to the length of the auto loan. Unless the bank has a special promotion, a rule of thumb is that the shorter the loan term, the lower your auto loan rate.

A third factor that the bank considers is down payment.
The higher the down payment, the more equity the borrower has in the car. Banks also look upon equity as a percentage of the value of the vehicle. This means that a $10,000 vehicle with a $1,000 down payment has the same equity percentage as a $20,000 vehicle with a $2,000 down payment. In looking at down payment, banks consider both the dollar amount as well as the equity percentage. Generally speaking, the more equity (expressed as a down payment) you have in your vehicle, the lower your auto loan rate.

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