What determines a loan term and interest rate when buying a used vehicle?
Everyone who has applied for an auto loan has sat across the desk from either a sales person or a finance manager and heard what their interest rate would be on a given approved loan. As most auto shoppers know, credit scores plays a big role in determining an interest rate but there are other factors that come into play.
With interest rates ranging from 1.99% to 24.99% here are the other major factors to consider:
Past financial habits reflected by your FICO score is also a huge consideration in determining loan approval and interest rate. Pay your payments on-time, every time and watch your score improve. You get penalized for those late payments.
Year and miles on the vehicle are big factors when determining interest rate and the term of the loan. For instance, say you have a 700 FICO score but you’re looking at a ten-year old vehicle with 150,000 miles. The good credit score is going to help with the initial approval aspect of your financing, but the age and mileage of the car will likely get you a shorter term loan and will add points to the interest rate that could otherwise be much lower with a newer, lower mileage vehicle.
A great sales person will explain these little details to you, or they will help you select a vehicle that matches your specific needs and situation. It never hurts to shop a little more educated and prepared. Finding the right vehicle can lower your interest rate, payments, and extend the term of your loan.
What Does FICO stand for anyway? When you apply for a line of credit or a loan, you are usually asked for your “FICO” score. Fair Isaac Corporation (FICO) is a publicly traded company that offers a service to financial institutions to underwrite the risk of granting a line of credit or loan called a credit score.