Car loans are a very different market to most other forms of finance, as the variations on interest rates and how the lenders determine these are huge. Unlike home loans, credit cards or unsecured personal loans where accurate interest rates available are published in many forms of media, motor financiers often determine their interest rates on a case by case basis and actual interest rates are not always published and in most cases the best interest rates available are not published at all, as not all applicants would qualify for those rates.
So how do you give yourself the best chance of getting the best interest rates available to you in the market? Here are our top five tips to obtain the best interest rate applicable to your circumstances.
1. Employment – the more times you change your employer within a three year period, shows instability to the lender. If they know that your employment is stable and you are likely to be an employee who does not move around too much, the lender can be comforted understanding what your future earnings may be and would also show commitment from yourself. If you are not earning money, you cannot pay your debts.
2. Address – Such as your employment, if you move around where you live too often, this would also show instability. The lender is using the car as security and they want to make sure that you are contactable and if you are one to move around too often, may make it harder to track you down if required, it may then be viewed upon as a higher risk borrow.
3. Credit File – Keep your enquiries on your credit file to an absolute minimum. If any credit provider advises you they cannot give you an estimated interest rate based off your application and they need to apply first, be very careful, as the more times you do this in a short time frame, could make your interest rate higher and higher. It is best to try and get it right first time, which is why it is good to make sure that you are also applying for a loan with a lender that you meet their criteria.
4. Security – The age and type of car you are buying can also have an effect on the interest rate you may be able to achieve. Also, how you are purchasing the vehicle could also determine the interest rate, whether it is being purchased through a private sale or a licenced dealership. The newer the vehicle, generally the more options with lenders, meaning the market is more competitive, giving you a better chance at a better interest rate.
5. Loan To Value Ratio – The amount you are borrowing against the vehicle may determine the risk of the application, which could have effect on the interest rate. The more equity going into the deal, the lower the risk and this could improve your interest rate. Equity can be made up of a trade in or cash deposit. However, negative equity is the opposite, where your trade in value is less than the payout of your loan, increasing your borrow on the new proposal and making the loan to value ratio higher and could increase your interest rate.
These are a few tips to assist in preparing yourself prior to applying for a car loan to increase your chances of getting the best available interest rate for your own individual circumstances. A professional broker with a range of lenders can assist in this, especially in regards to your credit file, as they should have the knowledge to get it right first time.
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