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Why do car loans have interest rates?
I want to buy a car, but I need a loan. My friend told me to shop around for the best interest rate. I'm not quite sure what this means. Why would a car loan have an interest rate?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Unfortunately, car loans do come with interest rates, so your friend is right that you should shop around.
Lenders charge an interest rate on
car loans
to make money off the deal. If they didn’t charge an interest rate, they’d essentially be giving you money free of charge. As a result, they wouldn’t make any money as a business.Interest rates are based on many factors, including:
- Your credit score
- Your income and debt-to-income ratio
- The length of the car loan (the longer it is, the higher the interest rate)
- Whether you buy a new or used car
Because interest rates can vary greatly, you should always comparison shop to make sure you get the best rate.
When you get a car loan, you’re also required to have full coverage car insurance. This can be a costly venture, so it’s a good idea to compare rates for insurance as well. Use the
Jerry
app to compare rates from over 50 top insurers so you always save the most money.View full answer
- Gregory R.
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