When buying a vehicle, one of the most important factors to the cost of the entire purchase is the vehicle finance interest rate. Everything else being equal, the lower the interest rate, the more affordable the vehicle will be. Finance rates are listed as a percentage and are set by the finance company that originates the loan.
Once the finance company approves your vehicle financing, it sets the interest rate based on a number of factors: The auto finance company will look at your FICO credit score. It stands to reason that
bad credit car loan interest rates are higher than good credit vehicle finance rates. A number between 350 and 850 and varies slightly with all three of the major credit bureaus – Equifax, Experian and TransUnion. The auto finance company will view at least one of these reports but may look at all three. The credit score that it sees is usually a custom score that is "vehicle weighted". That is, it places more emphasis on your automobile loan payment history than a normal FICO does.
Secondly, the auto finance company considers the length of the finance contract. Unless the lending company has a special promotion typically the shorter the loan term, the lower your auto loan rate.
Another think the finance company looks at is the equity position of the loan or LTV (Loan to Value). The more cash money down the buyer uses the more equity the borrower has in the car and the lower the interest rate will be. Loan LTV's lower the risk to the finance company, if they have to repossess the vehicle.
Finance companies also look upon cash money down as a percentage of the value of the vehicle. In other words, if you had $1,000 cash money down and the vehicle price was $10,000 in the banks eyes it would be the same as having $20,000 down and a price of $20,000.
