Is A 13% Car Loan APR High: What Affects Interest Rate On Auto Loans
A 13% APR or interest rate on a car loan will depend on a number of factors such as year of the car ( whether it is new, used or certified used), the terms of the loan, the down payment relative to the price of the car the car buyer is willing to make, Credit or FICO score, past bankruptcy, the use of a co signer and the type of lender
Type of Vehicle
New vehicles are frequently sold at a much lower APR than used ones. Currently the APR for a 48 months auto loan on a used car is 4.80% and 3.62% for a new one based on an average of 700 credit score.
Terms of the loan
The longer the term of the loan, the higher the interest rate. Therefore, the APR on a 72 months car note will be higher than the APR on a 36 months. This is because the longer the term, the greater the possibility of default or payment problems
Down Payment
Many banks, credit unions and car dealership lenders like BHPH do take the size of a down payment into consideration. It is advisable to put a minimum down payment of a least 5% of the car value. A 20% down payment is preferable. Car buyers can use the down payment as a negotiating tools.
You Credit Score
Car buyers with credit scores between 550 and 679 (subprime to prime range) will be offered an APR of 14.29% to 9.51%. Calculating the APR on credit score only, a 13% interest rate will be offered to car buyers with a credit score around 570.
Bankruptcy
If a car buyer filed for bankruptcy in the past, then some lenders will take this into consideration. Bankruptcy is a risk indicator to some lenders.
Co Signer
A co signer with a good credit score can reduce the APR of the loan because the credit score of the co signer is factored in
Type of Lender
95% of car buyers finance the purchase. There are mainly three categories of lenders: BHPH, banks and credit unions. BHPH are normally higher than banks, as car dealerships will try to make an extra percent on the loan.
Banks are a great source of financing. They have set rules that apply across all branches and they are more likely to work with the buyer in the event of a 30 days or more delinquency.
The APR credit unions offer are usually lower than banks and BHPH dealers. The maximum interest on all credit union loans is 18%
