Auto Loan APR: Everything You Need to Know
If you’re in the market to buy a car, it’s likely that you’ve been looking into auto loan APR rates. But what is a good APR? Is there such a thing as a “bad” APR? And more importantly, how can you make sure that you are getting a good deal?
The reality is that there is so much that goes into auto loan APR rates that you may be unfamiliar with. So, with this thought in mind, in this article, we will provide you with all the information you need to have in order to fully understand this concept.
An APR on your auto loan will greatly impact the overall cost of borrowing money and that’s why it is crucial to try and score a good rate.
Generally speaking, the lower the APR, the better. However, there are other factors to consider as well, such as the length of the loan and your credit score.
What Is APR and How Is It Determined?
When you’re shopping for a new car, you’ll see the term “APR” thrown around a lot. Just knowing that this term stands for annual percentage rate will not help you know how much you will actually be responsible for paying.
Your APR will be determined by a number of factors, including your credit score, the length of your loan, and the type of loan you choose. The average APR for an auto loan is about 6%. If you have good credit, you should be able to get an even lower APR. But in case you have bad credit, you may have to pay more than 10%.
The best way to get a low APR is to shop around and compare rates from multiple lenders.
How Does APR Differ from Interest Rate?
The annual percentage rate (APR) is the cost of borrowing money for one year, expressed as a percentage, and includes other fees associated with taking out a loan. The interest rate is just the percentage you will pay on the monthly basis on top of the principal.
So, the main difference between APR and interest rate is that APR includes additional fees or charges related to the loan, such as origination fees, broker fees, auto dealer fees, etc. Also, APR includes your interest as well and it will likely be higher. APR will be divided equally in your monthly installments and paid accordingly.
What Is a Good Auto Loan APR Based on Your Credit Score and Types of Vehicle?
If you have good credit, you can expect to receive a lower APR on your auto loan. The type of vehicle you are looking to purchase will also affect your ability to get a lower APR. A newer car will typically have better APR deals than older models. This may not seem logical to you but new cars are already expensive and even a small percentage will be enough for the dealership to make a profit.
Additionally, they are considered to be less of a risk by lenders than loans for used cars.
Either way, you should always make sure to compare rates from different lenders before making a decision so that you can get the best auto loan APR possible.
New auto loan
When you’re looking to buy a new car, it’s important to find a good deal on your auto loan as these vehicles can be pricey. A low APR can save you a lot of money on interest and make your monthly payments overall more affordable.
We suggest you first check your credit score to get an idea of what interest rates you may be eligible for. Then, compare rates to get the most for your money.
Keep in mind that the lowest rate isn’t always the best deal. You may see those 0 APR auto loans but lenders may require a large down payment or have other strict requirements.
Here is the average score and interest rate for new car loan deals:
|Credit score||Interest rate|
Used auto loan
On a used car loan, both the interest rate and APR will be higher than on a new car loan. This is because lenders view used cars as being more of a risk than new cars. After all, there’s no telling how well the previous owner maintained the vehicle or how many miles are on the odometer.
With that being said, you can still get a competitive interest rate on a used auto loan if you have good credit.
So, what’s considered a good APR for these loans? That depends on your personal financial situation but as a general rule of thumb, aim for an interest rate that’s 1-2 percentage points higher than the current average rate for new car loans. This will help ensure you get a competitive interest rate while also minimizing your overall borrowing costs.
|Credit score||Interest rate|
Can APR Vary for Different Types of Loans?
Yes, APR can vary for different types of loans. For example, a home loan APR will likely be different from a personal loan APR.
The reason behind this is that each type of loan has different risk levels associated with it. A home loan, for example, typically has a lower APR because the borrower is using their home as collateral. This means that the lender has a lower risk of not getting their money back if the borrower defaults on the loan. The same principle goes for auto loans as the lender can repossess the vehicle if the borrower can’t make the payments.
A personal loan, on the other hand, typically has a higher APR because there is no collateral securing the loan.
How Can I Get a Lower APR?
If you’re looking to get a lower APR on your auto loan, there are a few things you can do. First, you can try negotiating with your lender. In case you have a good relationship they may be willing to lower your APR.
Another option is to shop around for a new loan. If you can get a better rate from another lender, you may be able to refinance your loan and save money on interest.
Finally, if you have good credit, you may be able to qualify for a 0% APR loan. These loans are typically only available for new vehicles, but it’s worth checking into if you’re looking to save money on interest.
Why is APR Important?
The APR on your auto loan is important because it is the true cost of borrowing money. The interest rate does not include other fees and charges that may be rolled into the loan.
The APR does include them so it gives you a more accurate idea of a loan cost. For example, if you are considering a $10,000 auto loan with an interest rate of 5%, your monthly payment would be about $200. But if that same loan had an APR of 6%, your monthly payment would be about $222, or $22 more per month. Over the life of a five-year loan, that extra $22 per month would add up to an extra $1,320 in total payments.
If you’re looking for a good auto loan APR, there are a few things you should keep in mind. First, your credit score will play a big role in determining what APR you’ll be offered.
Secondly, even for the car loan, the size of your down payment can also affect your APR a lot. If you have a larger down payment, lenders may be willing to offer you a lower rate.
Finally, the type of vehicle you’re financing will also be taken into consideration, so take some time to determine which route you should take- buying a new or used car.