You would probably be the first to agree that you and your neighbor are not alike in every way. While shopping around for competitive financing rates for your next automobile, you might have exchanged small talk with your neighbor and heard them mention their auto loan rate.
If it was a lower rate, you probably asked yourself, "Why did my neighbor get a different loan rate?" The answer lies within the differences between your neighbor's income, credit score and down payment compared with yours.
There is No Standard Rate
Rates change based on the person applying for the loan. There are a number of factors that determine the interest rate you'll receive on your auto loan. The most important factors include:
The amount of money you earn plays a big role in determining your interest rate. A high income is indicative of your ability to pay your monthly loan payments with ease. A lower income signals added risk to the lender and a greater chance of missed payments.
- Credit score
If your neighbor has perfect credit and you have a less than ideal credit history, your respective credit scores will be drastically different. Your credit score is a major factor lenders use to determine your rate, as it gives them a snapshot of your previous lending habits.
- Down payment
So maybe you don't make an exorbitant amount of money or have a good credit score, but you've been saving for a car for awhile now. A large down payment on your next car serves as your equity in the deal, takes the burden off of the lender and lessens the amount of interest you will have to pay over the life of the loan. Likewise, applying for an auto loan with no down payment will not do your interest rate any favors.
Out-Financing Your Neighbor
Follow up on these guidelines and you could be the one with the better financing rate for your car loan next time. So what if your neighbor has a greener lawn and slightly larger house? You have an awesome new car at an affordable rate (and probably cooler pets).
At Auto Credit Express, we are here to help people like you find the right financing for their next car, truck, or SUV. Fill out our fast and safe online application to get the process started.