Check Your Credit Score
One of the most important factors that determine your auto finance rate is your credit score. Lenders use your credit score to evaluate your creditworthiness and determine the interest rate they will offer you. Generally, the higher your credit score, the better the interest rate you can qualify for.
Before applying for an auto loan, it's a good idea to check your credit score and review your credit report for errors or inaccuracies that could be hurting your score. If you identify any errors, you can dispute them with the credit bureau to have them corrected.
Shop Around for Auto Finance Rates
Different lenders may offer different auto finance rates, so it's essential to shop around and compare rates from multiple lenders. You can check with local banks and credit unions, as well as online lenders and auto dealerships. Ford Motor Credit typically offers competitive rates on new Ford models, as well as Certified Pre-Owned. These programs typically have better rates than you’ll find at a local bank or credit union. When comparing rates, make sure you're comparing rates for the same loan terms and down payment amounts to get an accurate comparison. You may also want to consider pre-approval for an auto loan to get an idea of the rate you can qualify for before you start shopping for a vehicle.
Consider a Shorter Loan Term
Shorter loan terms typically come with lower interest rates than longer loan terms. This is because the lender assumes less risk with a shorter loan term, as the borrower is paying off the loan more quickly.If you can afford a higher monthly payment, consider choosing a shorter loan term to get a lower interest rate. You'll pay less interest over the life of the loan and own your vehicle sooner.
Make a Larger Down Payment
Making a larger down payment on your vehicle can help you qualify for a better auto finance rate. This is because the lender is assuming less risk when you have more equity in the vehicle. A larger down payment can also help you avoid negative equity, which occurs when you owe more on the vehicle than it's worth. Negative equity can make it challenging to refinance your vehicle or sell it if you need to.
Loyalty Pays
If you have a history of making on-time payments with a particular lender, they are typically more willing to give you rates based on higher credit tiers. Lending, and the associated interest rates that go with it, is risk based. If you can show the lender that you’re not risky because you’ve done business with them and pay your loan on-time, it’s a solid signal that you’re not as high a risk as your credit score may otherwise say.
Consider Refinancing Your Auto Loan
If you've already taken out an auto loan with a high-interest rate, you may be able to refinance your loan to a lower rate. Refinancing can help you save money on interest charges over the life of the loan.To qualify for a refinanced auto loan, you'll need to have good credit and a history of on-time payments. You may also need to have equity in your vehicle or pay down your loan balance before refinancing. For these reasons, this option doesn’t happen very often, but with the used car market, and how trade values have been higher in recent months, it might be more feasible for vehicle owners in certain circumstances that aren’t yet ready to trade-in to a different vehicle.
Conclusion
While rising interest rates can make it more challenging to secure a favorable auto finance rate, there are still several steps you can take to qualify for a better rate. Check your credit score, shop around for rates, consider a shorter loan term, make a larger down payment, and consider refinancing your auto loan if you've already taken out a high-interest rate loan. By taking these steps, you can save money on interest charges and get the better auto finance rate for your situation.
