Factors That Affect Car Loan Interest Rates
Think about interest as an extra payment amount that is added to the amount you borrow to buy a car. It is important to note that different banks will have different rates. In addition, here are some other factors that affect car loan interest rates.
- Car Model – The make and model of the car as well as its value will directly affect the interest rate on your loan. For example, if you choose a model of car that is expensive, uncommon or has a low resale value, you should expect to pay a higher rate. If you choose a used, common Japanese or Korean car make, then the interest rates are typically lower.
- Your Credit Rating – Another key factor that directly affects the interest rate is your credit rating/ standing with the bank. When financial institutions rate you highly (you are a good paymaster, maintain a good savings balance, and own other assets), you will be regarded as a good borrower. This will result in lower interest rates. On the contrary, if you have a poor credit standing with banks, financial institutions will usually increase the interest rates on the car loan that you are applying for.
- Financial Status – If you show financial companies that you have a high and stable income every month, they will be confident that you can pay for the loan earlier. Thus, they will lower the interest rates. However, if they discover that you do not have a stable monthly income it would be possible that the rates will be high.
- Period of Loan – The period that you choose will likewise mater in car loans. In the Philippines, a longer period means higher interest rates.
There are times when there are hidden charges attached to the application and approval of your car loan. Thus, it is best that you talk to the loan officer in charge so as to ensure that you understand the amount of all other charges – even hidden ones – upon the approval of your loan application.