Car finance rates are not always entirely clear. You could say that the core concept is very easy: it’s how much extra you have to pay a lender for the privilege of using their money for a period of time. That is actually not too difficult to really grasp, but it’s only part of the story. The rate at which you can actually borrow that money can be affected by a number of different factors, any one of which might send your loan through the roof. That’s not to mention that there are tricks you should watch out for. Why don’t we take a quick look at some of the things that might change your interest?
More than anything else, it’s important to know that car finance rates rise the older a vehicle is. If you’re looking for used cars Charlotte NC, you’ll likely be paying a higher rate than if you are looking for a new car. The reason for this is twofold. First, newer cars are more expensive in general, so you end up paying a higher real dollar value in interest because the original number (the “principle”) is so much higher to begin with. The other reason is that older cars are less reliable and more prone to accidents or simply giving out. If that happens, there is a chance the lender won’t get their money back, and while they would prefer to make money, a higher interest rate means more cash coming in immediately that will replace whatever was lent.
Of course, your car finance rates are also affected by your credit score. It’s not always fair, but your credit score is the accepted method by which companies determine how trustworthy you are to actually borrow money and pay it back. For the same reason above, a lower credit score means a higher interest rate: the company wants to get back as much of their money as quickly as possible in case you don’t turn out to be a good investment.
You want to be careful when it comes to the people you’re dealing with, however. The ones who determine the rates are often loan officers who are working on commission, so they will either look for reasons to set high rates, or set low ones and then look for additional things to sell you, like maintenance packages and extended warrantees. This is not to say that these are bad things, but be wary if you’re offered them after you’ve already been given a quote, especially if they keep offering more and more extras.
Buying a car can be stressful, and it can be pretty confusing working on how you actually pay for it. But if you take your time and do your research, you should have no problem getting the right car finance rates.