When you borrow money from a financial institution, you are responsible for paying them a percentage over the amount you owe them—this is called interest. “Nothing in this life comes for free” is a good way to look at it.
However, not everyone pays the same amount of interest. The interest rate you get with your loan all comes down to your credit score. For example, you and your neighbor might both borrow $100,000. By the time you both pay back your debts, you might have paid a whole lot more than your neighbor did if you have bad credit. Talk to the professionals at PrimeLoans to learn more about how your credit affects your auto interest rates.
How Lenders Determine Your Interest Rate
Lenders study your current financial situation before offering a loan to you. This means, amongst other things, that they will look at your credit score. Credit scores, in the United States, range from 301 to 850 and generally fall into the following parameters:
Excellent Credit: 750 and Above
Good Credit: 700-749
Fair Credit: 650-699
Poor Credit: 600-649
Bad Credit: Below 599
However, different lenders may apply their own definition of ranges. It all depends on how high of a risk they see you as. We recommend shopping with several lenders to find the best deal for your loan.
How Interest Rates Work
Using a simple interest formula, you can calculate how much you would be paying over time with your rate:
interest to be paid = amount borrowed x annual interest rate x years to pay
Here’s an example: let’s say you borrowed $50,000 at 4% annual rate for 10 months. Then your math would be: 50,000 x 4/100 x 10/12. This means that you’d be paying approximately 1,670 dollars on top of the $50,000 due to your interest rate.
How to Get a Good Auto Interest Rate
The best way to get a low interest rate on your auto loan is to have a high credit score. Once a year, you are entitled to free credit score report. Keep a close eye on your finances to land the best interest rates available.
Remember that when you see commercials from car dealerships and other businesses offering low APR (annual percentage rate), or 0% APR, it doesn’t necessarily means that you will qualify. Always read the small print. Those offers are mostly for people with a good to excellent credit score.
Contact our firm to learn more about interest rates and the rates available to you. We are proud to serve clients nationwide.