Little Known Factors That Affect Car Financing
So you pay all your bills on time: your rent/mortgage, your utilities, your student loans, your credit card bills, your car loan(s), and so on. You have a great credit score (one that’s 700 or more). You’re in the market for a second car and so you head to the bank to get financed and you find that the financing on the loan isn’t as good as you’d expected it to be.
Your credit score – which is based a good deal on whether or not you’re always on time paying on your debts each month – is but one factor when it comes to financing a car. Here are the others.
Is the car new or used? Lenders tend to favor lower rates for new cars compared to used cars because lenders tend to believe there’s less risk involved. Newer used cars, however (those three years old or less, with low mileage), often can qualify for the “new car” loan rate.
The down payment you offer. The greater your down payment, the lower your interest rate will be. This is because you’ll be asking for a smaller loan. This is known as the Loan-to-Value (LTV). It’s best if you can offer at least a 20-25 percent down payment on the car, thus lowering your interest rate because lenders figure you have less chance of owing more on the car than it’s worth (being “upside down” on your loan) and thus will be less likely to default on the loan.
The loan-to-income and expenses-to-income ratios. The more debt you have in relation to your income (the expenses-to-income) the less a lender will look favorably upon you because if you have a lot of debt in relation to your income, the lender will believe a car loan will only add to your debt burden. Lenders generally prefer to see a car payment that is no more than 25 percent of your gross income.
The term length of your loan. In a nutshell, the shorter the length of your loan, the lower your interest rate. Once again, the amount of your down payment plays a big part here because the more you can put down on the car, the less money you’ll have to take out in a loan and the shorter the term of your loan!
A long period of unemployment. If you’ve been unemployed for several months just before taking out the loan, you could find yourself looking at a higher interest rate on the car loan.
Here at the PAACO Automotive Group , we consider our salespeople to be more like financial advisors, helping our customers find the car loan that best suits their needs. If you need a great used car, and if you live in the greater Dallas region, visit the PAACO location nearest you.
We look forward to serving you!
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