Interest rates on car loans can have large variations between lenders and also products available and they will also vary from client to client.
The most common question we are asked as a finance brokers is, “what is your interest rate?” This seems to be the most important question for a client looking for a car loan.
As finance brokers would have a range of lenders available, the variation in interest rates is very large, as firstly it will be based on the vehicle and how you are purchasing it and this will shortlist down which lenders would actually approve the car you are purchasing.
Age of the Vehicle
As some lenders apply their interest rates on the age of the vehicle and others may use a “rate for risk” scoring system, to accurately determine what interest rate and lender would best suit your circumstances, would be based off the strengths in your application, your credit file and the activity on it, and the value of your car you are purchasing and how much you want to borrow against it, whilst using it as security over the loan.
This would mean a full application would be required to determine the best interest rate and lender for your proposal, as this will allow whether it would be better to use the “rate for risk” system, or a lender who applies a flat rate based on the age of the vehicle.
Fixed Term Loans
Car loan interest rates with the main lenders in the motor finance sector are most commonly fixed for the term of the loan, which would mean that they won’t move up or down with the market and your repayments and interest rate will stay the same throughout the whole loan term.
Some of the best interest rates in the market could be similar to what the average 5 year fixed rate on home loans would be at the current time, but these would usually be available for very strong applicants with good past borrowing experience and a good asset position. Also the vehicle price, how much is being borrowed against it and the term of the loan could also change what interest rate you would qualify for.
Although car loans are usually a lot easier to obtain approval on than a home loan, each and every lender has their own unique way of determining the interest rates available and this can make it all very daunting for the borrower. Good professional brokers should be able to break this down quite quickly as they should understand the lender’s policies and which option would best suit each individual application.
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