Why Is Your Auto Loan Interest Rate Higher Than You Thought?
You have excellent credit, but when you went to get an auto loan, you found yourself looking at unfavorable rates. What's going on? It turns out that getting a new car loan is a little more complex than you might think.
There Are Many Different Auto Lenders
When you get an auto loan, you can get a loan through the dealership, a bank, a credit union, or virtually any other type of lender. These all come with their own loan rates. Dealerships tend to have fairly high rates by default because they're convenient and easy to use. Credit unions tend to have better rates but are very selective.
Ultimately, your rate is going to depend on the lenders that you use. You may have gotten a very high rate just because you went through a dealership, your credit notwithstanding. It may even have to do with when you got your rate, as rates do go up and down from time to time.
Your Auto Credit Score is Different
While you may know your own credit score, you might not know your auto credit score. Many people don't realize that auto lenders use a modified credit score that gives more weight to previous auto loan accounts. So if your credit is perfect but you've never had an auto loan before, your credit score might go down a little.
If you've been late on an auto loan before or had a vehicle possessed before, even a very good credit score may not be enough to qualify you for a good rate. You can ask your lender what your credit score looks like to them.
You Still Have Options
If you're confronted with a high interest rate, you can try to qualify for a loan with other banks and credit unions. Alternatively, consider getting a co-signer. A co-signer with a good credit score will be able to lower your interest rate substantially.
Sometimes, dealerships can even offer you promotional rates, if you go directly through them. Some dealerships have 0% financing for some time (such as the first year), which could mitigate the greater-than-average interest rates later.
Interest rates are worth looking into because a lower interest rate can save you hundreds or even thousands of dollars over the course of the loan. At the same time, if you're already getting a fairly decent interest rate, you may just want to go home with a car. Your auto lender can give you more information.
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