What Rates Will I Qualify for?

With the popularity of online lenders and increasingly competitive interest rates, it’s easier than ever to get approved for an affordable auto loan. However, the APR (annual percentage rate) you qualify for will be determined by a range of factors. Of course, credit is king, a positive history and a high score can overcome most financial issues. However, other elements like your credit utilization, debt-to-income ratio, employment history, and residence can come into play when lenders attempt to determine your buying power. Though, in most cases, it is safe to assume that the lower your credit score the higher your monthly payment due to interest rates, the best way to build your credit is to use your credit.  See our auto loan estimator tool. ​

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5 Top Factors Auto Lenders Consider:​

• Credit Score

• Credit History

• Residence - the length of time at address, whether you rent or own.

• Employment - How long have you been at your job and how much you make

• Debt-to-Income - The Ratio of how much you make vs how much you owe. ​

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Avoiding APR Markup 

Auto dealerships have limited input on the final interest rate you pay on an auto loan, but they do have some leeway to adjust rates for their benefit. When you finance a car through a dealership, they often work with a network of lenders to find you a loan. The lender sets a base interest rate (also known as the "buy rate") based on your creditworthiness, loan amount, and other factors. Dealers can indeed mark up this rate to increase their profits. While the markup is usually capped at a couple percentage points this can add up immensely over the likely multi-year life of your auto loan. Getting pre-approved online allows you to secure your rate and help make sure you're not wasting money on an inflated interest rate. 

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What Determines Available Interest Rates?

The federal funds rate, set by the Federal Reserve, is the interest rate at which banks lend money to each other. This rate indirectly influences the interest rates on various consumer loans, including auto loans. When the Fed raises the federal funds rate, banks' borrowing costs generally increase, and these higher costs can be passed on to consumers.

 

Additionally factors, such as economic growth, unemployment rates, and consumer confidence, can influence auto loan rates. In a strong economy, demand for credit can lead to higher rates, while in a weaker economy, rates may be lowered to stimulate spending. High inflation typically leads to increasing rates to control the economy's money supply and price levels.

 

Finally, the cost for lenders to acquire the money they lend out (their cost of funds) can affect auto loan rates. The level of competition among banks, credit unions, and other auto loan providers can also influence interest rates. More competition can lead to lower rates as lenders vie for customers.

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