As the market for a used car increased in recent times, financing for the same also saw a simultaneous surge, with more individuals seeking used car loans today than ever. Availability of these funding options has eliminated the need to worry about financing such as big-ticket purchases, depleting personal savings, and availing of high-interest loans for the purpose. Interest rates for used car loans are reasonable and much lower than many other unsecured funding options, making them affordable funding options. It only adds to all the perks that make a used car loan suitable for your second hand vehicle purchasing plans.
However, interest rates are subject to several factors which can result in you securing high or low rates, and determining the economy. Let’s check them out.
Top Factors the Impact used Car Loan Interest Rates
An individual’s income
Interest rate determination on any loan is a sum total cost levied on the borrower as per the risk involves in lending the advance. As the income of an individual is an essential contributor to the total risk assessment, it also significantly impacts the interest rates for used car loans.
Individuals with higher income stand a better chance at securing lower rates as they hold a high repayment capacity and low stress on their finances and vice versa. Simultaneously, the stability of income source is of critical importance too in determining the interest rate.
An individual’s credit history and score are an indicator of his or her creditworthiness and financial discipline. The credit history keeps a record of all the credit transactions made by you, your repayments, any delays or default, etc. thus helping determine your risk profile. The credit score is a numeric representation of this history and helps determine your risk profile, thus impacting the rates levied. You must maintain disciplined financial habits to keep your credit score high.
Down payment made
The amount of down payment made is an indicator of your financial stability and health, thus indicating your capacity to repay. It also determines your dependency on credit for such purchases. It is ideal to make a higher down payment to negotiate for the best interest rate for used car loan.
Car model and age
Although financial institutions provide funding for the purchase of all used car models, its initial arrival in the market and total price determines the risk of resale in case of repayment default. Similarly, the age of a model determines its resale value and depreciation rate, based on which lenders estimate the risk by the time the tenure ends. Interest rates on second hand car loans are thus determined based on the vehicle age and model. A newer model which has not been used for long attracts lower rates and vice versa.
Further, the repayment tenure selected by an individual also contributes to the interest rate a used car loan attracts. Longer tenures usually come with higher interest rates for used car loans and vice versa. Based on your standing with respect to these factors, you can negotiate with the lender for the lowest interest rate levy and improve affordability.