How Interest Rates Affect Your Loan
Buying a new vehicle at Felix Sabates Chevrolet Cadillac is exciting, but getting it with a great monthly payment is even more exciting. Here at Felix Sabates we love helping our customers save money, and one way we do that is by helping them find great financing. The interest rate you get when you finance a vehicle is a major factor in how much you pay each month for your new car. Our expert in-house finance team will work to find you the best interest rate – and the best monthly payment. But have you ever wondered just how much the interest rate affects your loan? Let’s take a look…
Interest and Your Monthly Payment
Let’s say you’ve found the Chevy or Cadillac of your dreams, with every feature and amenity you were looking for. After your trade-in and down payment are factored in, let’s just say the financed amount is $25,000. The typical loan period that most lenders will offer for financing this amount is 60 months, or 5 years. So this is what your monthly payment might look like for this loan at different interest rates:
| Interest Rate | Financed Amount | Monthly Payment |
|---|---|---|
| 0% | $25,000 | $416.68 |
| 1.9% | $25,000 | $437.10 |
| 4.39% (Avg Rate) | $25,000 | $464.8. |
| 7.9% | $25,000 | $505.71 |
While 0% interest rates aren’t common, promotional deals and having great credit can sometimes land you one of these. But let’s just take a look at the difference in payments between a 1.9% loan and a 7.9% loan. While the monthly difference may seem small at $68.61, over the life of the loan it will add up to an additional $4,116.60 spent on the car.
As you can see, there is quite a difference between a 1.9% interest rate and 7.9% interest rate when it’s spread out over time. So what can you do about this? Let’s look at some factors that affect the interest rate you may be offered.
Factors Impacting Your Interest Rate
The biggest single factor that affects the rate a lender will offer you for a vehicle loan is your credit score and credit history. The higher your score and the better your credit, the lower your interest rate is likely to be. That being said, there are other factors that can impact your potential rate.
- Credit Score – As we said, this is the single biggest factor. Since credit scores are measured in a range from 300 to 850, a score above 740 is considered good to excellent, and is likely to get you the best rates offered by a lender. Scores below that can mean you may pay a higher rate, while a score under 550 is likely to result in the highest rates offered.
- Down Payment – The more you put down on a vehicle purchase, the lower the interest rate you are likely to receive. In financing terms this is called the loan to value (LTV) ratio, and the better the ratio, the better your rate.
- Loan Term(Length) – The length of the loan you get can also affect the interest rate you are offered. Typically the shorter the duration of the loan term, the lower the rate.
- The Lender Of course, as with anything, the interest rate you’re offered also depends on the lender themselves and what their current loan mix looks like. That’s why it pays to try different lenders to get the best rate.
Here at Felix Sabates Chevrolet Cadillac, our loan experts work with you to find the best lender and the best loan rate to match your situation and budget. We know the ins and outs of auto financing and work with dozens of lenders, both locally and nationally. Feel free to come in and talk to one of our specialists about how interest rates affect your loan. We guarantee you’ll leave more educated.
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