Since few of us are at the financial level where we can pay cash for a new car purchase, it will mean that we will need to get a loan for the car. In order to get the most car you can for your monthly payment you want to make sure that you find the best low interest auto loans possible. The less you pay in interest, the more car you can afford to buy while still keeping your monthly payment at a reasonable level.
The interest rates that will be charged on car loans will vary from day to day, depending on what the market determines, but even within that fluctuation there are still factors that will determine what rate you will pay.
Of course, your past credit history will play a very large part in determining what interest rate you will be charged. The worse your credit score is the higher the interest rate you will have to pay. Someone with an excellent score may get a rate of around 5% but someone with a poor or average score may end up paying 15% or more on their car loan.
That can really add a lot to the overall amount you pay for the car as well as your monthly payment. So, you should do anything you can to improve your credit score before you go car shopping. Sometimes it can be as simple as correcting some mistakes on your credit report. Other times it will just take time. You will need to reestablish good credit by paying all your bills on time.
Even with a less than stellar credit rating you can get a better rate on a car loan if you can put a nice big deposit down on the car. Why? Two reasons, one it shows the lender that you do have assets and you are in a better financial position than you were when the problems arose on your credit.
And two, it means that your lender won’t be on the hook for nearly as much money so even if you do default they won’t take such a hit. Think of it like this: you’re trying to purchase a $25,000 car. If you don’t have any money down the bank is on the hook for the whole $25,000. But if you can put down $5,000 (for example) they are only on the hook for $20,000. That’s still a lot of money but it’s less and if they have to repossess the car and sell it at auction they will have a much better chance of getting all their money back.
There was a time in my life when I was happily driving a very old car that I had paid cash for. It was a wonderful little car and never let me down, for years. Than it just needed too much work and it was costing me too much money.
At the time my credit was very poor but I had no choice, I needed a car. I was able to get a loan though I had to pay through the nose on the interest rate, there were no low interest auto loans for me. The good news is that I did manage to get a great car, I paid all my payments on time and now my credit is outstanding, the car loan actually helped me reestablish my credit rating.