There are many myths and misnomers concerning getting the best new car financing rates and term. We will discuss of few things that you can do to ensure you are getting the best new car financing rates and terms.
New car financing interest rates and loan repayment terms are based on the perceived credit risk. This also holds true for auto loan refinancing. Higher risk applicants qualify for higher new car interest rates and shorter loan repayment terms. Aside from enrolling in a credit restoration or credit score improvement program, there are a few thing that you can do when buying a new car to lower the perceived credit risk in the eyes of the auto finance company.
Buy a New Car You Can Afford
It does not matter whether you you are applying for a new car loan, used car loan, or auto loan refinancing, banks, credit unions, OEM and third party finance companies use a few simple calculations that weight heavily on the perceived risk of the borrower. They are the Payment to Income Ratio and the Debt to Income Ratio.
In other words, lending sources compare what you earn versus what you want to borrow. For people that earn $2,000 per month, finance companies will offer better rates and terms on low priced cheap new cars and less favorable rates and terms on new cars priced over $20,000.
Lower the Loan To Value
Another calculation that weighs heavily on the perceived risk is the Loan to Values amount. This is another simple calculation that the lending source uses every time. It's the amount you want to borrow divided by the vehicles published value. For used car values, lenders use one of three valuation guides, Nada Guides, Kelley Blue Book, or Black Book. Values for each of these sources are easily obtained by searching for them on a search engine.
You can also lower the loan to value amount by buying cheap new cars with the biggest new car rebates. This is especially true if you have negative equity and are upside down in your current car loan. New car rebates may adsorb part, or all of the negative equity.
The best way, however, to lower the Loan to Value ratio and the perceived risk from the lenders stand point is using cash money down when buying a new car. Sure, many places, including our car buying website, can get most people approved for no money down auto loans, but the simple truth is that lenders consider cash money down as a commitment from the new car buyer.
Unless you have a stellar credit score, above 750, when you buy a new car with no money down, little money down, or are requesting a line of credit for an upside down car loan you will not qualify for the best new car financing interest rates.
Compare New Car Dealer Rates
Many people believe that new car dealers never offer the best new car financing rates. Nothing can be further from the truth. Although it is a good idea to get pre-approved for an auto loan, you should always consider utilizing new car dealers finance options.
Often, new car dealers receive special finance incentives for specific new car models from the manufacture they represent. When this is the case, as it often is, it's rare that banks, credit unions, or any auto finance company can compete with the OEM's captive finance companies interest rates. This is especially true if you are trying to buy a car with bad credit. If new car manufactures have to increase sales of a specific new car model, they will often relax their lending approval criteria nad approve bad credit new car buyers.
Getting the best new car financing when buying a new car is easy if you start by buying a new car you can afford, cheap new cars have lower loan to value ratios than similar used car values. Also consider vehicle with the biggest new car rebates and plan on paying a higher interest rate for no money down auto loans and upside down car loans. Last but not least, compare new car dealer rates. New car dealers not only receive special finance incentives from the OEM's but they also can help people buy a car with bad credit.