Car Loans – How to Win the Game of Interest Rates

The interest rate determines the amount of money you’ll pay for accessing a car loan. Simply put, it is the cost of borrowing money to be able to pay for the car now rather than later. It is the driving force of the industry and, right now, car loan interest rates range from approximately 4% to as high as 30%. Depending on your “risk” factor, lenders determine whether to charge you 4%, 30%, or any figure in between.

The common scenario is; the borrower applies for a car loan then waits to get approved with no control over the amount of interest they will be charged for. If you shop around and visit different lenders, you’ll notice that interest rates vary a lot. One might charge you 5% while the other 7% or even higher.

It is important to realise that it is in the lenders best interest to try to charge you with the highest interest rate they possibly can. Thankfully, certain regulations, the credit scoring model and the level of competition prevents them from doing so. The lender that offers the lowest interest rate always wins the customer.

Interest rates are determined by different factors such as the economy, inflation, supply and demand, and your creditworthiness. Out of the four, the only thing that you have control over is your own creditworthiness. That is what we will focus on in order to get you the lowest interest rate possible.

Taking control of your creditworthiness is like taking control of the interest rate on your car loan.

By definition, “Creditworthiness is a valuation performed by lenders that determines the possibility a borrower may default on his debt obligations. It considers factors, such as repayment history and credit score.”

Aside from that, lenders also check on your assets, liabilities, and debt-to-income ratio.

Lenders depend on a system in order to determine your creditworthiness and the system they use is also largely dependent on the information provided by credit reporting agencies like Veda, D&B, and Experian.

On the other hand, credit reporting agencies rely on reports forwarded by your creditors. That means that you are in control of whatever creditors have to report. All you need to do is make sure that you avoid:

• Late bill payments. Under the Privacy Act 1988, an overdue debt can be listed on your consumer credit report when it is overdue by 60 days or more, when the debt is at least $150. (source)
• Late credit card payments.
• Paying below the minimum credit card payment required.
• Not paying your credit card bills at all.
• Having accounts sent to collection agencies.
• Maxed out credit cards or high credit card balances.
• Bankruptcy.
• Debt agreement.
• Closing out credit cards with unpaid balances.
• Too many credit enquiries due to multiple loan applications.

Taking control of your finances and making sure your obligations are settled on time, every time, is the key to having a stellar credit score. When that is achieved, you may potentially expect the lowest interest rate possible each time you borrow.

1800Approved Finance Solutions provides low interest vehicle loans to individuals and businesses. Talk with them for a tailored vehicle finance solution.