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How is the interest rate calculated on a car loan?
What do people use to calculate the interest rate on a car loan? I want to make sure that I have the best chance of getting a good interest rate before I start applying.
Liz Jenson · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
The interest rate on a car loan is largely calculated based on the borrower’s credit score. The better your credit score, the lower your interest rate will be. There are a few other things that you can do to get a lower interest rate, though:
- Make a large downpayment. Most lenders will offer lower rates to borrowers who are able to pay a lot of money down.
- Opt for a shorter repayment period. Car loans with 72- or 80-month repayment periods typically have much higher interest rates than loans that are 60 months or shorter.
- Look at different lenders. Credit unions, for example, are known for their high acceptance rates and flexible rates. Check with multiple lenders to be certain that you are getting the best rates available.
- Don’t get a used car. While used cars can be cheaper overall, new cars typically come with a lower interest rate.
While understanding interest is difficult, finding the right insurance policy for your new vehicle with the
Jerry
app is easy! Just download the app and answer some quick questions to see your policy options in a comprehensive list. When you find a quote you like, Jerry can cancel your old policy and switch the policy on your behalf.MORE: How to buy a car with bad credit
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