How to Compare Vehicle Loans
If you agree to a high interest rate, you could pay thousands more for your car in the long run. Use an auto loan calculator to fully gauge the difference in payments and total payback amount before making a decision.
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Rates
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New car manufacturers offer very low rates, such as zero percent, which can't be beat by regular banks. Traditional financing institutions, such as a local bank or credit union, usually advertise rates for new or used cars. Check the company's website. Subprime financing, also for new or used cars, offer loans to risky borrowers. Some states cap the interest rate as high as 29 percent for a car loan.
Considerations
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Check with a bank to find out how much you can borrow for a vehicle. You may be subject to loan term restrictions depending on the vehicle you want to buy and your credit standing. Known as a loan-to-value ratio, banks decide the vehicle's worth and how much value they will lend. For poor-credit borrowers, this ratio can fall as low as 60 percent, while excellent credit customers can borrow up to 120 percent of a vehicle's bank-determined value.
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Warnings
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Banks differ in guidelines, so apply to your current bank or dealer to find out if you are eligible for the best rate. If so, you can shop lowest rates accordingly. If your loan is approved but with a high rate, you'll have to shop by continuing to apply. Not all borrowers are qualified for the best rates.
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References
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