Applying for a loan can be stressful, especially if you don't understand all the lingo. One such term often misunderstood is the "auto loan APR". To help clear up some of your worries, and help you understand what your lender is saying when they go through all the paperwork, we've put together a brief explanation of how your rate is calculated. If you're already sure you'd like to take out a loan with us, using your vehicle as collateral, you can calculate an auto title loan here right now!
Most auto loans base your Annual Percentage Rate (APR) off of three factors:
Some banks will also look at your account history and take it into consideration when calculating your APR. In most situations the better your credit score and the shorter the term for the loan is, the lower your APR will go. You also might notice that many of the low APR auto loans require you to have a new car, versus a used model. Banks want to make sure the item going up as collateral will be there if the loan falls through, and a new car is easier to collect on than a used.
Now just because you might have a higher credit score, doesn't mean you won't have a chance at a lower APR. Many lenders are willing to negotiate a bit, meaning maybe ask for a shorter term (like a 48 month loan versus a 60 month) or show good lending practices from a previous loan (this is where the whole, look at your account history comes in). In some cases even going over your credit report with the lender and explaining the situations for anything negative could help you out.
If you know your credit score is low, try to pay off any of the outstanding debts on it, so when you go in to get the loan, you can show (using your financial summary or a bank statement) that you have everything cleared up. It takes a bit for things to fall off your credit report, but showing you've done something about it is always a good plus.
Another great way to get a low APR auto loan is to look for specials. Banks run them all the time, and dealers do as well. With the dealers you might be limited on which cars you can purchase, but if it's a difference of a few percentages it might be worth your while.
Just like you would do when searching for your car, shop around for your loan. There are hundreds of different banks and lenders out there, and they all might offer you a different deal. If you have had an account at a certain bank for over 5 years, I would start there. They should know you best. The next place to look would be with the dealer. Some dealers work with certain banks to provide their customers better rates (no matter what the credit score is) if you go through the dealer.
It never hurts going in with more information than you need. So check out how much the car you want is worth through Kelley Blue Book or Edmunds.com and enter all your info (before you finalize the loan) to figure out what your payments will be. Always remember, no matter what, auto loan APR is simple to understand, and can range anywhere between 5% and 20% based around the information you provide.
By working with our lenders, you could end up saving up to 20% on your repayment, and eliminate the risk of being taken advantage of.
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