How the Type of Car Can Change Your Loan Rates


Everyone wants a nice car that will turn heads as well as get you where you need to go, when you need to get there. When the time comes to purchase your new vehicle, however, you should be very careful to stick to what you can afford. Trying to shoot for the moon can be a bad idea, especially when considering interest rates. What you may not know is that the type of car can change your loan rate.

Newer vs. Older Cars

The model year of your car can have an effect on your loan rate, and not in the way you may think. Buying a newer car can be a bad idea — newer cars instantly depreciate in value the moment you drive them off the lot. Combined with the interest rate you pay, this can instantly have you upside down on your loan, owing more than the car is worth, by up to 20 percent of the car’s value.

Buying an older car, on the other hand, does not carry this problem. Consider a car that is perhaps two years old with lower mileage. You can get a favorable interest rate, a much lower purchase price, and won’t have to worry about being underwater on your purchase. Many dealers even offer zero percent financing during end-of-year clearance sales, if you have good credit.


Make and Model

It’s a pretty basic equation: higher-end cars cost more to finance. While that luxury sedan, sports car or full-sized SUV may be the car of your dreams, can you really afford to purchase it? Generally speaking, your loan rate will be higher on a more expensive vehicle because of the higher risk for theft and damage to these cars. This is similar to the reasons why it costs more to insure these cars.

When you consider the car you want, you should think about a compromise. You might be able to get a very similar vehicle that perhaps isn’t quite as high-test. A smaller engine, fewer features, even a competing brand at a lower price can all be ways to get a better loan rate.


Going by the Numbers

The biggest factor in determining your loan rate is going to be a combination of your credit and your finances. This is where the make, model and year of your car come into play the most. The bank will look at your finances against what you are paying for the car when determining the rate of your loan. If your debt-to-interest ratio is too high or your credit score too low, you will likely suffer with a higher rate.

What this means is that buying a newer, more expensive car will almost always garner you a higher rate unless your credit is stellar. With less-than-perfect credit, consider a few compromises. A few less features and a car that is a year or two old can make all the difference.

If you have less than perfect credit and need help securing an auto loan, check out our informational page and get in touch with us today. We can get you into the car you need.


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