Car Loan Interest Rates

Car Loan Interest Rates Are Not As Bad As They Were

When you buy a car, most of us don't have the dough to walk into the dealership and just write a check. We usually have to get financing in one form or another. The two most common forms are through a bank or credit union or through the car dealership themselves.

Yeah, your qualified, but are you 'well' qualified?
Oh yes, the credit score. The number all of our worthiness is based on when it comes to buying things. It's as simple as this: The highest possible credit score is 850. The closer your score comes to that number, the lower your interest rate will be. Cool. Well qualified buyers are usually defined as people with a credit score of 750 and higher. Now, the interest rates go up as the borrower's credit score goes down. Yikes. Standard procedure is that the rate will increase 1/8th of 1 percent for every 25 to 50 points your score drops from the well qualified level. Bummer.

How is the loan rate figured out?
It's actually pretty straight forward. It starts with 3 factors: the purchase price, the term and the interest rate. The interest rate is an annual percentage rate (APR). Divide the APR by 12, which determines the monthly interest rate. Divide the purchase price by the term of the loan. Take the monthly principle, add it to the monthly interest and that is the monthly payment for the vehicle. Got it? No? Here is an example:

Purchase Price: $10,000
Term of the loan: 60 months
Interest rate: 6%

The interest rate is an annual percentage rate (APR). 6%

Divide the APR by 12 -- 6 divided by 12 = .5

.5 = Monthly interest rate

Divide the purchase price by the term of the loan. -- $166.66

Take the monthly principle - $166.66 x .5 = 83.33

Add monthly principle and monthly interest and your payment would be: $249.99 per month

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