How is Your Auto Loan Interest Rate Decided
Owning a car stands in the line of priorities after home for many individuals in India. Whether you are looking for small or a big auto loan, you need to shop best interest rates in the market to kick the best bet. Many invest ample time in selecting the brand and model of the car but fail to shop for the car loan lenders in the market. This big mistake is giving an advantage to the car loan lender. Most of us choose to go with the bank where we hold the account. The lender who understands that the client has not done enough researching finance options tries to push hidden charges without any hassle. You should understand the factors that affect car loan interest rates so that you can negotiate the interest terms with the lender.
The credit score is the deciding factor of the interest rate on any type of loan and your car finance should not be an exception. There are good chances of fetching the vehicle finance at the low-interest rate if you have good credit score. Fetch credit report from the free reporting agencies to know your credit score. Having a good credit score will power you with bargaining the car loan interest rate too. On the contrary, if you have bad credit, you will either end up in paying high-interest rate or no loan will be approved.
Vehicle financé demands a certain amount towards down payment. Higher the down payment, lower will be the rate of interest as the amount lent by the bank becomes lesser. The banker will be assured of your financial position as you are paying a good percentage towards the down payment and there are good chances to offer you the loan at low-interest rate. There are some dealers who are offering the loan with zero down payments. Choosing this option will oblige you to pay high-interest rate.
New car/used car
Buying new car and old car through car loans does not have same gameplay. Though you have good credit score and put a decent amount towards down payment, the interest rate for financing old car is high when compared to new one. The risk of financing the old car is high because it has less insurance coverage.
The lender considers your income-debt ratio to approve the auto finance. Lower the income debt ratio, better are the chances of getting loan approved. Low income-debt ratio will give the lender assurance about your repayment capacity, thus there are good chances of offering the auto finance at lower interest rate.
Car make and brand
Banks have different tires of interest on specific car make model and age. The interest of particular brand and make are predetermined by the banker. They have every right to say or no to provide auto loan for a particular brand at the advertised rate. Crucial fact here is, both your income level and credit score are taken into consideration while deciding the interest rate on your auto loan irrespective of its brand and make.