Jan 222013

What Affects Your Car Loan APR

When you are trying to secure a car loan, you may be surprised by the APR that most companies charge in order to secure this loan. The APR, or annual percentage rate, is decided by the company on a person-to-person basis, meaning that things which you do can affect how much APR you have to pay.

There are other factors which will also affect how much interest your company charges per month. Knowing the rules can help you to avoid high APR charges, or at least allow you to understand why your particular APR is so high.

Credit Ratings Affect Car Loan APR

Perhaps the most significant personal effect which happens with car loans is the borrower’s credit rating. These scores are based upon the individual’s record of debt payment. If you have been very good at paying back your debts on time, all the time, then you should have a great credit rating, and this will give you a lower APR.

With a bad rating, you may find that not only is your APR higher, but you have trouble getting the full car loan that you desire. This is based upon the bank’s trust, or lack of it, in the person applying for the loan.

Cash Deposits Affect Car Loan APR

Another thing which can affect the APR of your car loan is whether you offer a cash deposit when you pick up the car. A cash deposit is something that both lenders and car dealers feel comfortable with, after all you can’t bounce a note. If you are willing to take out enough money to cover the deposit on the car, then you should get a lower APR. If you can’t get a down-payment, then expect to be charged a higher APR.

Length of the Loan

The length of the loan will also affect the car loan APR. This is due to the speed at which you are making the repayments, more than any negative aspect. If you take out a 2-year loan, then APR will be higher than that of a 4-year loan. You should consider this when making your application, as a longer loan will give you more income. On the other hand, if you want to get the debt paid quickly, a high APR will be more suitable.

Type of Car Purchased

The type of car you buy will also affect the APR of your car loan. Used cars typically attract a higher APR than new cars. This is due to the risks of a used car breaking down, which are expressed through high interest rates. New cars are also insured through the manufacturer’s warranty, meaning that the loan is secure even if the car breaks down.