Auto Loan Interest Rates: Taking A Closer Look
What does it mean to get a good interest rate on an auto loan? For many buyers, this question is one of the hardest riddles to pick apart in all of the car buying process – involving a fair amount of expertise on everything from interest rates to loan structuring, and can be a serious sore point if not properly set to match your budget. Interest rates often seem like low, trivial numbers at first, but over time your interest rates can equal and even exceed your initial loan amount if set too high. That’s why it’s important to understand what kind of loan you’re getting, how long you plan to keep the loan, and what kind of interest rate you should settle for once you’ve decided.
If you’re curious about interest rates for car loans with bad credit from a buy here pay here dealer or want to know if a loan you’re considering is fair, here’s a quick look at what to expect from interest rates on your auto loan and how to deal with an interest rate not to your liking. With just a little know-how and the right information, you too can get an auto loan that fits your budget now and in the long term.
New Car, Good Credit – Prime Interest Rates
The “ideal” consumer – that is, a buyer with a good credit score (above 700 or so) and no bad credit histories – looking for a new or relatively low-mileage used car can expect to receive a “prime” interest rate, or one adjusted to be lower over a relatively shorter amount of time. These usually hover just around or under five percent – a pretty good benchmark for determining how much you should expect to pay if you fit into this category. Many dealers offer incentives like zero percent interest for a set number of months, which can mean less cost to you once the interest actually does kick in. Other may have to settle for something a little higher starting at the loan’s commencement – still a pretty good deal in the long run, and which will probably only add a few hundred or a couple thousand to your overall total, depending on the size of the principle.
Used Car, Okay Credit – Nonprime Interest Rates
If you’re a car shopper looking for a quality used car but have a less-than-stellar credit rating – say, between 600 and 700 – you might be looking at a nonprime interest rate, which can hover anywhere around 10 percent on average. This is likely to add a few thousand dollars to your total, but for bad credit buyers this might be the best game in town. Plus, this added cost can be mitigated through things like early payments and a large down payment.
Used Car, Bad Credit – Subprime and Deep Subprime Interest Rates
For all other buyers looking to find a used car with bad credit histories, the only option might be a subprime or deep subprime interest rate – usually for buyers with scores under 600 or under 500, with corresponding rates hovering around 15 to 20 percent, respectively. These can add a hefty sum to your overall payment total but for some buyers they may be the only option available – and can mean the difference between getting a used car or not.
While not every interest rate on an auto loan may be the best deal financially, it helps to understand exactly what you’re getting into before signing any paperwork. That way, you know what to expect and how to deal with a high interest rate long before it does serious damage to your wallet – meaning more money for you to use on that next great used car.