There’s no one size fits all annual percentage rate (APR) on a car loan. Instead of worrying about the best rate, you should focus on getting your best rate. For the most part, everyone likes to get the best deal they can, and getting the best interest rate on a car loan is no exception.
What is APR?
Annual percentage rate, or APR, is the price you pay for borrowing money from a lender, whether it’s a bank, credit union, or finance company. Your APR is determined by the amount of interest you pay annually, averaged over the term of your loan, plus any additional charges and fees.
Because interest rates are based on a prime rate and your credit score, your interest rate could very well be different from someone else’s. This also means that the best APR you quality for may not be the best APR that someone else might qualify for.
What’s the Best Possible APR?
When it comes to APR, it seems like everyone’s looking for that magic number: zero percent. This may sound great when you hear it in car commercials, but the truth is that very few people actually qualify for zero percent financing.
Whether you’re getting a direct loan or financing through a dealer, your APR depends largely on your credit. The better your credit, the lower the APR you’ll likely qualify for. All lenders have their own idea of what a “good” credit score is, but, typically, you should fall into that category if your score is 700 or above. Even with a score of 700, though, you may not qualify for a zero percent APR.
So, you have to know how to get the best APR possible, and getting that means paying attention to two things in particular: the APR being offered by lenders and automakers and your own credit score.
How Do I Get My Best APR on a Car Loan?
This is where knowing your credit comes in. When you know your credit score, you’re less susceptible to unnecessarily high interest rates. Knowing the average interest rate offered to people with similar scores allows you to have a bargaining chip of sorts if a dealer wants to charge you a higher APR than you’re eligible for.
Another tip is to try getting pre-approved before you get to the dealership. Direct lenders, such as credit unions, sometimes offer better rates – especially if you’re a member in good standing. Qualifying for direct lending is no cake-walk though, and can be difficult for people struggling with poor credit. If you’re unable to get a direct loan for a car, be sure to shop around for the best rates through dealerships.
You should also be aware that those automaker specials offering low APRs usually cover a set loan term that isn’t negotiable. If this is the case, the monthly payment for a shorter loan term with a low APR may be more than you can handle. It’s also best to look at the overall cost of the loan along with the monthly payment in order to be sure you’re getting the auto financing that’s best for you. If you do all your rate shopping within a given time frame – between 15 and 45 days – your credit should suffer less due to the “rate shopping” window that'll recognize multiple inquiries as shopping for a single loan.
Ready to Get Started?
If you’re ready to start looking for the best APR on your next vehicle, but aren’t sure where to turn, why not give us a try? Here at Auto Credit Express, we take pride in helping people with credit issues get matched with local dealers that can help. Our special finance dealers work with lenders that can help people in most credit situations get the financing they deserve. Getting started is simple – just fill out our online auto loan request form now!