How are car loan interest rates determined?

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Car loan interest rates are determined by a few things: First off, and most important, is your credit rating. You, and everyone else are judged by the bank based on your FICO score. The higher your score, the lower your interest rate. It depends on where you live, but most banks will pull an experian, or equifax credit report on you upon requesting a loan for a vehicle. You should always stay on top of your credit rating, and know what it is. Second, interest rates are determined by what you are buying, compared to what it is worth. If you are buying say a car with a value of 10,000, but you are looking to borrow 12,000 the bank may determine you elible to receive financing, again based on your FICO score, but may raise the finance rate. This enables the bank a higher return on their money given to you. If you owe more than what the vehicle is worth, and the loan defaults, this at least gives the bank some return to make up for the deficiency in value. Other determining factors may be the market. If things are slow, banks may sometimes lower rates to increase buyers potential. Mostly, though, the first two factors determine what you are going to get in terms of finance rates. Know your credit, keep it good, and low interest rates result.

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age of car term of loan loan value your credit rating

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Many times they are variable around the market percentage, but your credit score gets factored in too. The better your credit, most often, the lower the rate.

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The bank gives either you directly (if no dealer is involved), or the dealer the rate they are charging. When a dealer is involved, they will mark it up as much as possible. Most banks only allow a 2 - 3 % mark up. Good luck!

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