When you are looking for a new car, one of the things that you may have on our mind is, ”What is the interest rate for a used car loan with good credit?” Ideally, we could give you a number and send you on your merry way, but there are too many factors for that. If you bear with us, we can give you those factors and an approximate interest rate, though.
Factors To Consider
The first factor to consider is the length of the loan. Most banks will offer their lowest rates to people who are looking for a loan of 48 months or lower. After 48 months, each additional 12 months of the loan will add to the interest rate.
Next, you need to look at your debt-to-income ratio or DTI. DTI is the percentage of your monthly gross income that you have committed to your recurring monthly expenses, including the payment on the loan you are applying for. Lenders offer the lowest possible rate to borrowers who have a DTI that is 35 percent or less. A DTI between 36 and 40 percent will still get a favorable rate, but not the lowest possible. A DTI over 40 percent can lead to a loan denial.
A third factor to consider is the amount of your down payment. With a credit rating of ”Good”, you may qualify for some zero down deals. What dealerships do not tell you is that you will be required to pay a higher interest rate. You should always offer at least $1,000 as a down payment. Whether that is in cash, trade, or a combination of the two. That shows a definite commitment to paying the new loan off, prompting lenders to offer a better interest rate.
Approximate Interest Rate
As of today, the prime rate being charged on new car loans with a 60 month term is 3.99 percent. That rate is only applicable if you have an ”Excellent” credit rating. With a rating of ”Good”, you can expect an additional interest point, so expect a rate of 4.99 percent. Keep in mind, this is not an advertisement–just an estimate. Your actual rate will vary.
If you have a high DTI, you may be asked to pay 6 percent. If your DTI is high and your down payment is low, you may face a rate of 7 percent. Those numbers do not take into account a higher interest rate if you want a 72 month, or longer, loan term.
As you can see, there are many factors that will determine the exact interest rate that you will be offered when you apply for a car loan. If you are aware of other factors that may raise or lower the interest rate of a loan, please tell us about it in the comments section.