The 5 Key Factors That Determine Car Loan Rates

Learn How Car Loan Rates Are Determined…..

Car on coins

Interest rates have never been lower so if you’re looking for a car loan you have chosen a good time to do it! Whilst it’s a great time to be looking it’s important that you understand what factors will determine the interest rate that you’ll get for your car loan.

1. Credit History

Your payment history on previous loans and other credit will be a major factor in determining whether; a) you qualify for a car loan, and b) what rate you qualify for.

If your previous credit history is poor your choice of lenders will be restricted and those lenders that are prepared to provide you with a car loan will want to charge a higher rate for what they regard to be a higher risk. However, if you have had loans before and can demonstrate good payment history you will have access to more lenders and lower loan rates.

2. Personal Profile

Lenders evaluate you based on your profile. They look at elements such as your occupation, time with your employer, residential status and history as well as your assets and liabilities and income and expenses positions.

The more solid and stable your profile the happier a lender is because they see low potential risk and are keen to lend to you, rewarding you with lower loan rates.

3. Loan Security

When looking for a car loan you’ll have the choice of secured and unsecured loans. The general rule of thumb is that rates are lower for secured loans than they are for unsecured loans. This is because with a secured loan the lender gets to use the car that you’re buying as collateral and if you don’t make your loan repayments as agreed they can potentially repossess it and sell it to cover what they are owed.

With an unsecured loan there is more risk involved for the lender as they effectively lend you a cash amount and have no rights over what you use the loan for. As a result of the increased risk the rates are generally higher.

4. Age of Car

It’s newer the better as far as most lenders are concerned! Generally the lowest loan rates are reserved for new and nearly new cars. Lenders normally find that the loan repayment histories for newer cars are better than they are for older used cars. Whether it’s because the borrowers for new cars have more stable circumstances or because they value keeping their car more, they generally tend to be better payers. As a result new and nearly new cars are seen as less risky and lenders are prepared to offer lower rates to borrowers buying these cars. Add in the fact that newer cars also tend to require higher loan amounts, and lower loan rates for newer cars are a no brainer for most lenders.

5. Where You Are Buying From

Whether you’re buying from a dealership, a private seller or an auction will have a bearing on the rate that you get for your car loan. If you’re buying from a dealership you’ll have a much larger choice of lenders, including car loan specialists, and as a result you’ll find more competitive rates.

If you are using a normal secured car loan most lenders prefer to finance vehicles that are being bought from a dealership or car yard. This is because they feel that there are less potential issues around who has ownership of the car and their payment processes are often more suited to dealing with these type of suppliers.

So while you may be able to get a great deal on the purchase price when buying privately or through an auction it may well prove more difficult to get a great loan rate.

Getting a Great Car Loan Rate

Regardless of whether you’re a lenders’s dream or if your situation is a bit different, using the Tools and Resources at and Comparing Quotes from different lenders can help you to find the very Best Car Loan Rate for your individual circumstances.


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