Auto Loan 101: Factors to Consider - The Family Credit Union (2024)

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Understanding the different factors involved with these loans will enable you to plan for an application and consider any offers you receive. Here are some important factors to know about when applying for an auto loan.

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1. Credit Score

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Your credit score is based on the credit history found in your credit reports and sums up how reliable you are with repayments. It’s a reference for institutions looking to give out loans and helps to determine how much money they will be willing to lend and what conditions the loans come with, such as rate of interest and monthly payment.

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2. Debt-to-Income Ratio

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Lenders can also assess your ability to take on new debt through a debt-to-income ratio. This ratio measures of your overall debt compared to income. A borrower with a high debt-to-income even with a high income, has a chance to get a lower loan amount and less favorable terms than they would otherwise receive.

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3. Size of Initial Payment

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The money you initially pay can have a big effect on your loan. A down payment can be used to reduce your total loan amount, which means less risk for the lender. It is also less likely for you to stop making payments and risk losing the car. In most cases, the larger the down payment and the lower the loan amount, the lower the interest, and the more favorable the offer will be.

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4. Length of Auto Loan

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The amount borrowed will be divided into monthly installments that will be paid back over a set number of years. The length of that period will dictate the size of your monthly car payment. For example, if a car buyer with a $20,000 loan, 60-month term and 6 percent APR they would end up with a monthly payment of $387. If they were to increase the length of the loan to 72 months, the payment drops to $331, although total amount of interest charges will increase. Car loans typically range from three to seven years, with six years being the average, and the longer loan’s terms, typically come with higher APRs.

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5. Year of Vehicle

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Another factor of an auto loan is the year of the car. New cars are typically associated with lower-rate loans than used cars. The reason for this is because of lending risk. In the event of a repossession, a new car has a higher resale value, enabling the lender to recover more of the money that they may have lost.

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Get Auto Loan Financing that Suits You the Best

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Along with the factors that are listed above, the choice of lender will also affect a buyer’s auto loan and their purchase process. The Family Credit Union has vehicle loans available for new or used autos, boats, motorcycles, or recreation vehicles. If you are in need of an auto loan, contact one of our professional staff today for more information. To keep up with the latest from The Family Credit Union, follow us on Facebook"}

Auto Loan 101: Factors to Consider - The Family Credit Union (1)

Financing is an important part of most car buyer’s purchases, and the terms of the auto loan can have a strong bearing on how you feel about the overall buying experience.

Understanding the different factors involved with these loans will enable you to plan for an application and consider any offers you receive. Here are some important factors to know about when applying for an auto loan.

1. Credit Score

Your credit score is based on the credit history found in your credit reports and sums up how reliable you are with repayments. It’s a reference for institutions looking to give out loans and helps to determine how much money they will be willing to lend and what conditions the loans come with, such as rate of interest and monthly payment.

2. Debt-to-Income Ratio

Lenders can also assess your ability to take on new debt through a debt-to-income ratio. This ratio measures of your overall debt compared to income. A borrower with a high debt-to-income even with a high income, has a chance to get a lower loan amount and less favorable terms than they would otherwise receive.

3. Size of Initial Payment

The money you initially pay can have a big effect on your loan. A down payment can be used to reduce your total loan amount, which means less risk for the lender. It is also less likely for you to stop making payments and risk losing the car. In most cases, the larger the down payment and the lower the loan amount, the lower the interest, and the more favorable the offer will be.

4. Length of Auto Loan

The amount borrowed will be divided into monthly installments that will be paid back over a set number of years. The length of that period will dictate the size of your monthly car payment. For example, if a car buyer with a $20,000 loan, 60-month term and 6 percent APR they would end up with a monthly payment of $387. If they were to increase the length of the loan to 72 months, the payment drops to $331, although total amount of interest charges will increase. Car loans typically range from three to seven years, with six years being the average, and the longer loan’s terms, typically come with higher APRs.

5. Year of Vehicle

Another factor of an auto loan is the year of the car. New cars are typically associated with lower-rate loans than used cars. The reason for this is because of lending risk. In the event of a repossession, a new car has a higher resale value, enabling the lender to recover more of the money that they may have lost.

Get Auto Loan Financing that Suits You the Best

Along with the factors that are listed above, the choice of lender will also affect a buyer’s auto loan and their purchase process. The Family Credit Union has vehicle loans available for new or used autos, boats, motorcycles, or recreation vehicles. If you are in need of an auto loan,contact one of our professional staff today for more information. To keep up with the latest from The Family Credit Union, follow us on Facebook!

Auto Loan 101: Factors to Consider - The Family Credit Union (2024)

FAQs

Auto Loan 101: Factors to Consider - The Family Credit Union? ›

What credit score do auto lenders look at? The three major credit bureaus are Experian, TransUnion and Equifax. The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage. We're going to take at look at FICO® since it has long been the auto industry standard.

What factors are considered when getting a car loan? ›

Factors used to determine auto loan interest rates
  • Your credit scores and history.
  • Your income and debts.
  • Amount of the loan.
  • Length of time you'll be paying back the loan, called the “loan term” or “term of the loan"
  • Amount of your down payment in relation to the value of the vehicle.
Jan 30, 2024

What credit score do credit unions use for auto loans? ›

What credit score do auto lenders look at? The three major credit bureaus are Experian, TransUnion and Equifax. The two big credit scoring models used by auto lenders are FICO® Auto Score and Vantage. We're going to take at look at FICO® since it has long been the auto industry standard.

What 3 factors determine the monthly payment on an automobile loan? ›

Here are the 3 major factors that affect both your monthly payment and the total amount you'll pay on your loan:
  • The loan amount. It can be significantly less than the value of the car, depending on whether you have a trade-in vehicle and/or making a down payment.
  • The annual percentage rate. ...
  • The loan term.

What are considerations for car loans? ›

Understand Loan Terms and Conditions

Understanding all of the terms and conditions of a car loan is crucial before committing to one. This covers the interest rate, length of the loan, amount of the Equated Monthly Installment (EMI), processing costs, penalties for early repayment, and any additional costs.

What determines auto loan approval? ›

Steady jobs and longer tenures make lenders more likely to approve your application. Your earnings provide the means to repay your loan. Lenders may check a borrower's assets, including savings and checking accounts. Higher incomes allow qualification for more significant loan amounts and more favorable interest rates.

What determines how much you get for a car loan? ›

1. Car loan amount. The amount of money you need to borrow can be determined by whether you still owe money on your current car, the purchase price of the vehicle you're buying, the amount of your auto down payment and if you have a car you're trading in.

What credit score do most credit unions use? ›

FICO® Scores are the most widely used credit scores. Each FICO® Score is a three-digit number calculated from the data on your credit reports at the three major consumer reporting agencies—Experian, TransUnion and Equifax.

What is the lowest credit score to buy a car? ›

Most used auto loans go to borrowers with minimum credit scores of at least 675. For new auto loans, most borrowers have scores of around 730. The minimum credit score needed for a new car may be around 600, but those with excellent credit often get lower rates and lower monthly payments.

What auto loan rate can I get with a 650 credit score? ›

Average auto loan interest rates by credit score
Personal FICO scoreAverage interest rate for new car loansAverage interest rate for used car loans
661 to 7807.01%9.73%
601 to 6609.60%14.12%
501 to 60012.28%18.89%
300 to 50014.78%21.55%
1 more row
Mar 4, 2024

What is 6% interest on a $30,000 loan? ›

For example, the interest on a $30,000, 36-month loan at 6% is $2,856.

Is $2000 a good down payment on a car? ›

If you're considering a car that costs $25,000, putting down between $2,000 and $4,000 would be wise. However, the true answer to this question depends on your negotiation strategy. If you can negotiate a lower price or better terms, putting more money down may not save you much interest.

What is a good interest rate for an auto loan? ›

Average Car Loan Interest Rates by Credit Score
Credit Score RangeNew Car Loan RatesUsed Car Loan Rates
781 to 8505.64%7.66%
661 to 7807.01%9.73%
601 to 6609.60%14.12%
501 to 60012.28%18.89%
1 more row

What is the #1 factor to consider when financing a vehicle? ›

Credit Score

It's a reference for institutions looking to give out loans and helps to determine how much money they will be willing to lend and what conditions the loans come with, such as rate of interest and monthly payment.

What matters most when financing a car? ›

Be sure to pay extra attention to your credit score while financing. Having a good credit score means more options for auto loan rates. Sometimes, dealers attempt to offer higher loan rates. Having prior knowledge of all auto loan rates you qualify for, in this case, will help you secure the right auto financing.

What is the best rule for financing a car? ›

According to our research, you shouldn't spend more than 10% to 15% of your net monthly income on car payments. Your total vehicle costs, including loan payments and insurance, should total no more than 20%. You can use a car loan calculator to calculate a monthly payment within your budget.

What matters most when applying for a car loan? ›

Sufficient income, credit and a history of paying debts on time are among the top criteria lenders seek in an applicant. The documents you need for an auto loan verify that you can afford to pay back what you borrow.

What other factors will influence my decision on a car loan? ›

Here are some important factors to know about when applying for an auto loan.
  • Credit Score. ...
  • Debt-to-Income Ratio. ...
  • Size of Initial Payment. ...
  • Length of Auto Loan. ...
  • Year of Vehicle. ...
  • Get Auto Loan Financing that Suits You the Best.

What factors go into the decision to buy a car? ›

Let's discuss 5 factors to keep in mind as you budget for your next vehicle.
  • The Direct Cost of Purchasing a New Vehicle. This is the most obvious cost you'll need to consider. ...
  • Your Monthly Payment. ...
  • Auto Insurance. ...
  • Maintenance and Repairs. ...
  • Fuel Costs.

What is an important consideration before taking out a car loan? ›

Know Your Loan Eligibility Beforehand

Be sure to pay extra attention to your credit score while financing. Having a good credit score means more options for auto loan rates. Sometimes, dealers attempt to offer higher loan rates.

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