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Auto lenders consider a variety of factors when determining your loan interest rate. One of the more influential factors is your credit score. As a result, it's possible to know what a reasonable, or average, interest rate might be based on your credit score range. Knowing this before heading to a dealership or applying for a loan can give you an idea of what to expect and help you budget for a vehicle purchase. In general, higher credit scores correlate with lower auto loan rates, so understanding the potential rate you'd pay may help you determine whether it'd be better to wait and improve your credit before you apply for a loan. What Are the Average Auto Loan Rates by Credit Score?Experian's quarterly State of the Automotive Finance Market takes a look at the average auto loan interest rate paid by borrowers whose scores are in various credit score ranges. As of the first quarter of 2020, borrowers with the highest credit scores were, on average, nabbing interest rates on new cars below 4%. Used car interest rates were slightly higher on average, bottoming out on average at 4.29%. Here's what you can expect from auto loan rates for new and used cars:
Note that your interest rate can also vary if you finance a vehicle purchased through a franchise dealer versus an independent dealer. In general, franchise dealers can net you a slightly lower rate. How Do Auto Loan Rates Work?Auto loan interest rates are determined through risk-based pricing. If a lender determines you're more at risk of defaulting on your loan because of your credit score and other factors, it will typically charge a higher interest rate to compensate for that risk. Factors that can impact your auto loan interest rate include:
Whatever auto loan interest rate you qualify for, it'll be represented in the form of an annual percentage rate (APR), which may include the cost of both interest and fees. The lender uses your interest rate to amortize the cost of the loan. This means that you'll pay more interest at the beginning of the loan's term than at the end. Where Can You Get the Best Auto Loan Rates?There are several ways you can get a car loan, and some auto lenders may offer lower interest rates than others. DealershipsAll franchise dealerships and many independent dealerships may offer what's called dealer-arranged financing. This means that instead of applying for a loan with lenders directly, you'll fill out a credit application at the dealership and the finance manager will shop around for you. Dealer-arranged financing is convenient, but in some cases the rate may be higher than what you can get through a direct auto loan because it also compensates the dealer for finding the loan. BanksMany national and community banks offer auto loans. In some cases, you may be able to get preapproved for a bank auto loan before you ever set foot in a dealership. With some banks, though, you can only get a loan through dealer-arranged financing. Some banks may offer loans on a national level, but they typically won't offer the best rates compared with other lenders. Credit UnionsIn general, credit unions charge lower interest rates than banks. Because they're nonprofit organizations, they typically use the money they make to provide lower rates and fees and better services to their members. Depending on the credit union, you may be able to apply for a loan directly, through a dealer or both. You usually have to be a member of a credit union to apply for a loan, however. So check with your local credit union to see what your options are. Online LendersOnline lenders can often provide lower interest rates than banks and sometimes even credit unions because they don't have the overhead costs associated with a network of brick-and-mortar branches. Also, online lenders will typically allow you to get preapproved before you formally apply, which can allow you to shop around and compare auto loan rates more easily. How to Reduce Your Auto Loan Interest RateImproving your credit score is one of the best ways to score a lower auto loan interest rate. You can do that by checking your credit score and credit report to get an idea of which areas you need to address. Common ways to improve your credit score include getting caught up on past-due payments, paying down credit card debt, limiting new credit applications and disputing inaccurate information on your credit report. As you work on building your credit, here are some other ways you may be able to reduce your auto rate:
Consider each of these options and determine the right ones based on your situation, goals and abilities. Maintain Good Credit for Future Auto PurchasesWhile improving your credit for your next car purchase can save you money in the short term, maintaining good or excellent credit can provide even more savings in the long run, on future auto purchases as well as other financing options. Make it a goal to
monitor your credit regularly to keep an eye on your credit score and the different factors that influence it. Keeping track of your credit can also help you spot potential fraud when it happens, so you can address it quickly to prevent damage to your credit score. What is a good APR for a 700 credit score?Good Credit Score For Mortgages. Can you get a car loan with a 700 credit score?As you can see, a 700 credit score puts you in the “good” or “prime” category for financing, making 700 a good credit score to buy a car. While it's always a good idea to get your credit score in its best possible shape before buying a car, if you're already around the 700 range you will be good to go.
How much of a loan can I get with a 700 credit score?You can borrow $50,000 - $100,000+ with a 700 credit score. The exact amount of money you will get depends on other factors besides your credit score, such as your income, your employment status, the type of loan you get, and even the lender.
What APR will I get with a 700 credit score personal loan?Individuals with excellent credit, which is defined as any FICO credit score between 720 and 850, should expect to find personal loan interest rates at about 9% to 13%, and many of these individuals may even qualify for lower rates.
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