Your Guide to Auto Financing: Rising Interest Rates and Tightening CreditPosted: Updated:
While auto manufacturers continue to sell record amounts of new cars over the past few years, concerns have been growing about rising interest rates and how it will affect car sales.
Difference in Financing New Versus Used
It’s important to note that interest rates differ between new and used vehicles. Typically, the interest rate is higher on a used vehicle than it is on a new one. The main factor is that a used vehicle generally has more risk and a shorter available term. Some new vehicle loans can be extended out to 60 to 72 months, where the average used car loan is around 48 months, and an average interest rate at 6%.
It’s true, higher rates mean borrowing money comes with higher costs, but many auto manufacturers are still offering aggressive financing options on their new vehicles. In fact, as most consumers have grown to expect financing options in the low single digits, it is only on new cars where rates still exist at or near zero percent.
Qualifying Factors and Your Options
Many different factors go into loan qualification including credit score, down payment, length of term, and cost of the vehicle. These are just a few of the things looked at by a lender.
So how does this affect you? If you are looking at purchasing a new vehicle, the interest rate hikes can have minimal to no affect. Most manufacturers have “captive finance” arms that exclusively provide loans to people who purchase their vehicles. Some local dealerships form relationships with lending institutions that offer very aggressive rates to all ranges of credit scores. New vehicles typically come with some sort of rebate or manufacturer incentive that can lower the cost of the vehicle, thus making it easier to get qualified to purchase.
If you have a lower credit score and some black marks on your credit reports, don't worry. There are still many options for you to purchase a vehicle. While your ultimate rate may be “near prime” or “sub prime”, many dealerships utilize their relationships with loan institutions and can get you qualified.
The public should be prepared for more interest rate hikes, but don’t get discouraged if you’re ready to replace your mode of transportation. There are still plenty of available options for consumers of all credit ranges.
This content is sponsored by Jim Price Automotive
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