Understanding Auto Loan Interest Rates: A Buyer's Guide

When you're getting ready to purchase a new car, you should know the average interest rates for auto loans. If you know that information, you can know what to expect as far as your interest rate and compare offers from lenders. Your income, credit score, and credit history will all affect your rate. The credit score you have when you apply is the biggest factor here because it indicates how risky you are when it comes to repaying. Generally, the higher your score, the less you have to pay in interest. 

Average Rates for Different Credit Scores

Before picking out a new Jeep, Dodge, Chrysler, RAM for sale, you should think about the average rates for your credit range. In general, newer cars are going to have a significantly lower interest rate average. Therefore, if you can afford it, you should consider springing for a new car. That will help you minimize the amount of money you give to a lender. Otherwise, you will be paying more to your lender when you buy a used car. 

People with superprime credit scores buying new cars are going to pay the least in interest and people with deep subprime credit scores buying used cars are going to pay the most in interest. If you have a credit score over 780, you can expect the lowest rates on the market and if you have a credit score under 500, you can expect the highest interest rate available, if you can find a lender who will give you a loan. 

Recent Trends in Rates

When the federal funds rates were raised, interest rates rose. That means that rates have risen recently to their highest point in years. Many financial companies offer a monthly report on interest rates. Before these raises began, interest rates were below average. Post raises, interest rates skyrocketed to the highest they've been reported in 23 years. The gap between buying a used or new car has also increased. 

Use Average Interest Rates Wisely

When you know the average rate for your credit score, you can play around with loan amounts and repayment options to find something you are comfortable with. Then, you can apply for loans to get your final rate, which will help you solidify your budget. Then, you just have to worry about comparing fuel economy and other features. Just remember the budget you set for yourself and stick with payments that you are comfortable making. 

Prepare for Your Interest Rate

If you're looking at a new car, it's important to understand how all of the different factors will affect your interest rates. In general, the higher your credit score, the lower your interest rate. You can also expect to have a higher interest rate if you purchase a used car. Outside factors, such as the federal fund rates, also impact your interest rates, although these are out of your control. Just remember to look up average rates for your credit range and use them to your advantage.