A vehicle always costs more than its sticker price when you pay for it with an auto loan. Though the difference between the sticker price and the real price may be shocking, you can predict how much you will pay, to a degree before, you even step foot on the lot.
Average Rates
Though new cars typically cost more than their used counterparts, the interest rate on an auto loan for a new car is lower than that for a used car. According to Bankrate, the average rate on a new car is 3.85 percent as of May 2011. It's about 4.79 percent for a used car. In addition, a four-year loan term costs slightly more in interest than a three-year term. The interest rates are 4.36 percent and 4.28 percent respectively.
Changes in Interest Rates
Auto loan interest rates are subject to change between dealerships and through time. In fact, they change weekly according to the Bankrate website. Check the average interest rates in your area at least once every week while you shop for a car. You could miss out on a deal by not doing your homework.
Your Credit Score
Your credit score can significantly impact the rate you receive on an auto loan. A credit score of at least 700 almost guarantees you low rates while a score of 720 or higher practically guarantees you the lowest rates possible. According to CreditReport.com, this can be as many as four percentage points less than dealers offer other customers. Request your credit score from TransUnion, Equifax or Experian --- or all three --- to see where you stand. For about $40 you can get your scores from all three agencies through Experian.
Comparing Loans
Don't consider just the interest rate on a loan, but also consider the monthly payments. Since a debt-to-income ratio greater than 36 percent can make it more difficult for you to get a car loan in the future, opt for the least expensive car you can enjoy. To find out whether payments will make your debt-to-income ratio too high, multiply your monthly income by 0.36. The result should not exceed what you pay every month for your car.
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