Interest Rates For New Car Loans

Most people don’t realise that the interest rates for new car loans change depending on your financial Interest Rates For New Car Loanssituation.  To get the lowest interest rate you need to make sure that your finances look the best they can.  So what do I mean by this?  Here are several steps you can take to make yourself more attractive to a lender so they will want to give you a loan:

Be Honest about your Situation

Lenders will check your Credit Report to see whether you have any outstanding debts, what other loans you have applied for, if you have any bad credit history like bankruptcies.  It’s amazing how many people forget to mention major financial problems in their past, and when the lender finds evidence of them (which they always do) then they can get suspicious about what else you might be hiding!  It’s best to always be very open about any bad circumstances in your past because then you can explain them and the circumstances that caused the problem to occur and offer explanation of why that won’t ever happen again.

Does that sound confusing?  To give you an example, I had a home loan client who said they had no credit problems but when the lender investigated their history they found that they had an electricity bill that hadn’t been paid from 12 months before.  In this case it was from a property that they had been renting about a year before.  They moved out of the unit, didn’t have a redirection on their mail and the bill never reached them.  The electricity company would have sent them a couple of notices about it but they never received them.  From the electricity company’s position they had an unpaid debt and it was added to their credit file.

In that case they paid the outstanding bill and the lender was happy to offer them a loan at the interest rate we applied for.  But if they had lots of instances of unpaid bills on their file then lender has to look at their history and conclude that they aren’t good at paying their debts, so they are a high risk client and the lender needs to charge them a higher interest rate of interest.

So It’s All About Risk.

The less risky you look to a lender, the happier they are to have you as a client and so the lower the interest rate they can offer you.  So what do you do to make yourself more attractive to a lender? Here are a couple of tips to get you started:

  1. Get rid of any credit cards or store cards you don’t need.  When lenders look at credit cards theyInterest Rates have to assume that you could go out tomorrow and spend the lot.  If you have a $15,000 credit card, it’s going to drastically reduce the amount they will lend you.  This is because they calculate what your monthly repayment would be if you spent to the limit.  Most calculate it at about 3% of the balance.  So if you have a $15,000 credit card, that means that you would have to pay $15,000 x 3% or $450 each month in repayments.  When the lender looks at how much money you earn each month, they will take away $450 first before they look at how much you have left to pay the repayments on your new car loan.
  2. Pay your bills on time.  Pay your bills before they are due, and if you disagree with a  charge on your water, electricity or phone bill you are safest to pay the bill first and then discuss it with them afterwards – they will refund the money to your account if they have made an error, and it keeps your credit file clear.  If you can’t pay the bill upfront get in touch with them and let them know that you have a query with the charges and ask them to put a note on your file so that they don’t take overdue action until the matter is sorted out.
  3. Check your credit file.  order a copy of your credit file and just check that there are no mistakes on it.  It’s much less stressful to talk to someone about paying out an outstanding debt BEFORE you are waiting for approval on a loan for your new car!  In my next post I’ll run through how you can get a copy of your credit file and what to do if there are unexpected things on it.
  4. Reduce your other debts.  Just like credit cards, other debts are going to reduce the amount of money you can borrow or increase your interest rate.  If you have a personal loan that you pay minimum repayments on every month, try and pay it off or at least reduce the balance.  That way you will be able to borrow a little more if you need to for your car loan.

Of course, some of these tips take a bit of time so if you are in a hurry to get a car loan you can just apply for it and hopefully there will be no problems.  The lender will check your credit report to make sure there are no problems showing up and in most cases the application will go through smoothly, or might just need an explanation about little things that the lender wants to understand better.

If you’re in a hurry – maybe you’ve just started work and need transport, or your existing car has seen better days! – you can just fill in my Enquiry Form and I’ll get someone to call you who I think is the best match for what you’re looking for.  They will get in touch with you and find out the details of what you’re looking for and what your circumstances are and can give you a quote for what loan would be best for you at this time.  It can also highlight any areas of your finances that you can improve for any loans you might want in the future such as for a home or a boat.

Let me know below if you have any questions about interest rates for new car loans, or if you’ve had any experiences with personal circumstances affecting the interest rate you could get.  Plenty of people have surprising stories of taking crazy loans because they thought all loans were the same…

 

 

4 Replies to “Interest Rates For New Car Loans

  1. It’s true that the less risky you look to a lender, the happier they are to have you as a client and so the lower the interest rate they can offer you. However I personally believe that debt is a trap. It’s great when buying property, a house or an apartment but I think it’s bad business when we see young professionals driving expensive cars that they need to make sacrifices to have. It’s actually easier for many to lease a car without any downpayment than it is to go a buy a second hand car for cash up front.

    1. I agree with you Nigel. Using a loan to buy an asset that reduces in value, like a car, is not ideal. You really want to save up and buy a car with cash. Unfortunately many people have trouble saving up the money or need the car to get them to work to make the money! That’s where having the right loan (or indeed a lease where appropriate) is so important. Getting the wrong loan because you didn’t understand the fine print or didn’t know that there were other options can be a VERY expensive lesson and that’s why I want to increase peoples knowledge about lending. If you need to use a loan, get good advice on it and get one that suits your needs. As you mentioned, there is the option of leasing a vehicle and that can be a great option, particularly for people who have their own business or get a car with their job. I’ll be going into more detail on leasing in the next couple of weeks, and I have specialist lenders I use for those who are interested in leasing a vehicle. Thanks for your comment Nigel!

  2. Having a good credit history helps you get loans. I understand that paying off any outstanding loans is a plus. However, some people have big loans that could take years to pay off i.e. student loans. Any ideas on how to reduce students loans or pay them off faster?

    Thank you for the post.

    1. Thanks for your question Udoh. With loans that will take a long time to pay off, like student loans, it’s worth checking the terms of the loan to see if there is any benefit (or discount) if you pay the loan off early. You may be able to make additional payments if you have some extra cash, or increase your repayments slightly which can have a big impact on how long it takes to pay off the loan. Also check the interest rate because if you have a couple of loans or credit cards that you need to pay off you want to make sure that you are paying off the debt with the highest interest rate first. Some credit cards can charge more than 20% interest for any amount that is owing on them for more than 45-60 days and this can be VERY difficult to ever pay off. So check the interest rates and the conditions of each loan and card. If you are paying a very high rate on a credit card, some lenders offer a 0% interest rate for up to 2 years if you transfer the debt to their credit card. This can be used to transfer an amount that is owing and then focus on paying off that amount as quickly as possible. Be careful not to borrow more on these credit cards because you will be paying interest on any new funds borrowed on them.
      If you just have the student loan, check the interest rate and the terms. Student loans are usually at a low interest rate and making your payments on time will be good for your credit rating. If you later apply for a car or home loan, the fact that you have paid off the student loan shows the lender that you know how to meet your loan commitments and this will assist you in getting the lowest interest rate if you shop around.
      Hope that helps!

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