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Factors That Influence Car Finance Interest Rates

There are two main factors to consider when searching for financing for a vehicle. The first is the current trend in vehicle interest rates and the second is personal credit score and history. Both of these factors, and a few others, influence what kind of finance rates will be available to a particular car buyer.

Interest Rate Trends

Decent and affordable interest rates became more difficult to be approved for after the height of the sub-prime mortgage crisis, as lenders become more conservative. However, domestic manufacturers are now increasing incentives in order to bring more potential customers in the door. Inflation also affects the going interest rates for vehicles. Part of the reason interest is charged on a loan is to counteract the effects of inflation, which allows banks to make sure they have more money in the future.

Personal Credit

Just like any other situation that involves lending and credit, the better the credit score and history one has the better interest rate he/she will receive. It is estimated that as many as 15% of potential car buyers qualify for a zero percent rate on a car loan. Even those with poor or little credit history, or even a bankruptcy in their recent past, are able to qualify, though their car finance interest rates will be higher than those with near perfect credit.

Other Factors

There are a few other factors that can contribute to the determination of car finance interest rates. Such as:

  • Type of lender used
  • Buying a new or used car
  • Length of the loan term

Before looking for a new vehicle it may be helpful to be aware of what the market is for car finance interest rates and also of one’s personal credit score. Not much can be done about the current trends for vehicle financing, but potential borrowers do have some control over their credit score and report. If a new car will be in someone’s near future it may be a good time for them to take a look at their credit report, correct any mistakes, and work towards increasing their score. Improving one’s credit score and being aware of market trends in car finance interest rates will help ensure there are no surprises when a potential car buyer finds their next vehicle and applies for financing.