There are many ways to go about locking in the lowest car loan interest rates, so you should always be mindful of these when approaching the car loan application process. Some of the ways you can go about securing the lowest car finance interest rates include:
Show a positive credit history
The better your credit history, the more likely you are to be approved for the cheapest rates on car loans. This is because a high credit score indicates to a lender that you’re a responsible borrower who can be entrusted with significant loan debt and has the discipline to repay it on time and in full. Car loan financiers view applications through the lens of risk: a lower credit score, in theory, poses a greater risk of default than a high one, so they set their rates higher to compensate for that increased risk.
Maintain a stable income and permanent employment
Part of making sure your lender is confident in your ability to comfortably repay the loan across your term is showing that you aren’t at risk of losing your job and running out of funds. Remaining in the same position for upwards of three to six months prior to your application and completing your probationary period will benefit you significantly, particularly if you’re full-time or permanent part-time. Additionally, receiving a consistent, comfortable income which is enough to support your repayments on top of your regular expenses will boost your chances of approval for the lowest car finance rates.
Choose a brand-new car
Because car loans utilise the vehicle you buy as security, your rate will be lowered the newer it is. This all comes down to potential resale value: brand-new cars and those less than three years old at the point of purchase are more valuable and less likely to fail for whatever reason than an older car. Lenders always prefer vehicles in this zero- to three-year age bracket, so selecting from this range is likely to result in a lower rate (albeit not substantially lower than a used car in good condition).
Opt for a longer repayment term
In most cases, the lowest interest rates are offered by lenders to borrowers who select a longer repayment term. You can decide on whether to repay your car loan debt over a term of one to seven years, with the longer terms generating greater overall interest for the lender. Because of this, interest rates on shorter terms are generally higher. It’s important to consider which is best for you and what term length ensures the balance between the most manageable repayments and the lowest car loan interest rates.
Lenders prefer borrowers who are asset-backed, meaning they own a significant asset (most commonly property) and have repaid it in full or are in the process of repaying it. If you own your home, your chances of locking in the lowest available car finance interest rates will be boosted by some margin. If you don’t own a home, you may also help your chances of a low interest rate by showing evidence of substantial savings, known as “cash at bank”, which can have the same effect as property (albeit not as effective).
Have a similar loan repaid previously
Finally, showing your lender that you’ve repaid a similar car or personal loan in the last few months or years is verifiable proof that you’re capable of taking on the responsibility of repaying a significant loan debt on time and in full. Lenders will reward borrowers who can prove that they pose little risk by lowering interest rates, which will help you save a substantial amount over the life of your loan. This is especially relevant for borrowers buying their first car, as they won’t be able to draw on any successful car loan repayment history but can show their discipline through past personal loans or credit card repayments, among other areas.