Purchasing a car is one of the biggest investments you can make in your life. Different means can be used to raise the money needed to buy a car. For instance, you can buy a car from your savings or by taking a loan. There are many factors which determine the amount of interest charged on car loans. These factors will guide you in securing an auto loan at a lower rate.

woman's hands holding wallet

Credit history

Individuals with a higher credit score are empowered to get a higher loan due to their strong bargaining power. It is always advisable to bargain with the lender to get a loan at a low interest especially if you have a high credit score. People with a poor credit score will get loans at high rates or even fail to get it.

Income level

A lower debt-to-income ratio is better than a high one. This is a clear indication that the borrower will not have issues when repaying his or her car loan. Lenders will be more confidence when lending money to individuals having higher repaying abilities. Such individuals will get a loan at a low interest rate.


Down payment amount

Banks will lend you less amount if you happen to pay a high down payment. The risk incurred by the bank will go down in such a case. This will also prove that you have a sound financial position. People with a sound financial position will always get a loan at a low interest.

Car age and model

red Ferrari

The lender will always assess the model of your car and its age before lending you any money. Banks will sieze the cars of the individuals who fail to repay their loan (defaulters). The amount obtained is used to settle the unpaid loan. It is therefore important for the financial institutions to make sure that they decide on the interest rate charged on the different car models. Popular car models such as Ferrari have a higher resale value than the less popular ones.

Loan’s tenure

Car loans have a high tenure of up to seven years. In general, banks will charge short-term loans at a high interest rate and vice versa. For instance, a loan extending up to 23 months will attract an interest rate of 12.75%. This rate will go down to 12.25 % for loans extending up to 24-36 months. This rate will reduce further to 10.75% for loans extending three years.