What does my interest rate on my vehicle purchase depend on?

Hello car buyers! Many of my guests at our store have a hard time understanding and estimating payments for a vehicle, whether it is better on payment to go with a less expensive vehicle - like a certified preowned or used, or just to buy a brand new car to achieve their payment goals.

In general, lenders and banks see a vehicle as collateral on the loan a customer would like to purchase. A lender sees a brand new vehicle as less of a risk to them because that vehicle has a higher likelihood that the loan customer will be paying payments on the vehicle - therefore the lender can make their money over time, which keeps the interest rate low and competitive. A lender sees a used vehicle as more of a risk depending upon the age of the vehicle, therefore the interest rates tend to be higher so the lender can make their money sooner rather than risking the vehicle being traded or paid off quickly. That's the general thought process when it comes to rates, but of course there are many other factors. I've compiled a list that can be helpful to anyone in the market for a vehicle. Most if not all of these items in my list, most or all lenders consider when calculating your interest rate for a car loan. Here we go:

Your rate and payment depends upon:

1. Whether you are buying a new or used vehicle
2. The percentage of the total amount being financed as a down payment (typically lenders like 10% down)
3. The amount financed itself
4. The term or length of the loan (36, 48, 60, 72 months or even longer)
5. Your total monthly income
6. Your credit history (mortgage, consumer debt/credit ratios)
7. Your previous automotive credit
8. The amount left to pay off on the vehicle you are trading in
9. Whether your loan will be in your name or in you and another buyer's name
10. The numbers of days until first payment
11. The source of financing (Car manufacturers have their own lending companies. Many can take into account past history with them over an outside lender)
12. The type of financing (conventional, special APR, etc.)
13. How long you have been in the area
14. How long you have been with your current employer
15. Whether you own or rent your residence
16. Whether or not you have a checking account
17. Whether or not you have a savings account
18. Number and type of credit references
19. Amount you have in savings
20. Your present occupation (Lenders love people in the medical profession, just for example)
21. Your debt to income ratio (If you have $30,000 in available credit, lenders like you to only be in debt about 10% or less of that credit limit, so $3,000 or less)
22. Whether or not you have a phone (Yes, believe it or not, some people who buy cars live off the grid)
23. The model of the vehicle you are purchasing (a luxury sedan may be the same price as a compact 4-door, but the lenders see them differently)
24. Whether or not you are a college graduate
25. The total of your other monthly obligations

Whew! So that's my exhaustive list of things that your car loan rate and payment may depend on when purchasing a vehicle. If you have any questions, please reach out to me and I can assist you with your purchase needs. My goal is to be your advocate and to lead you down the track of awareness to help you make an informed decision about your next vehicle purchase. Thanks for reading!