Car Loan Interest Rates

The interest rate you get on a car loan is dependent upon a variety of factors.

An inevitable part of any car loan is the interest rate. When you get an auto loan, you will be charged a fee, usually expressed as a percentage of the loan balance each year, called the interest rate. All loans, including those for credit cards and homes, carry interest rates. A car loan is no different. You are charged a fee as part of the price of borrowing money.

How car loan interest rates are figured

Base interest rates are set by the Federal Reserve. When you apply for a car loan, this base rate, called prime, is the lowest rate you are likely to be charged (unless there is a special deal). However, most people pay more in interest on their auto loans because other factors contribute to lenders adding percentage points onto the prime rate. Some of these factors include:

• Your credit history
• Amount of your down payment
• Amount of time you want the car loan for
• Condition and age of the car
• Income level
• Special “loan sales”

There are various ways to improve your interest rate. And it is a good idea to do so, as the lower your interest rate, the less you pay in fees. And that means you can save money in the long run.