How to Get the Best Car Loan Rates

Purchasing a new car is a great experience and finding the car of your dreams and the payment to match is the best part. Now that you have found the car, how do you make sure that you are in the best position to get the best interest rate? Think of the following three ingredients of an auto loan approval. Understanding how to use these three ingredients to your advantage will not only save you big bucks on your next car loan, but they could be the difference between being approved or declined

Ingredient #1: Your credit score

To get started, check your credit score. If your score is above 650, in most cases you should qualify for standard rates. The higher your credit score, the lower your interest rate may be. Here are some helpful hints on increasing your credit score

• Order your Credit Profile and make sure it’s up to date. If there are mistakes, have them corrected by filing a dispute.
• make sure your accounts are up to date an you pay your bills on time especially for at least 6 months before applying for a loan.
• Keep your credit card balances way below your credit limits and do not apply for any more credit. Nobody said it would be easy, but with a little work, your credit scores can be improved.

Ingredient #2: Debt-Servicing ratio

To be sure that your purchase if affordable, lenders will use a debt-servicing calculation taking into consideration your monthly payments and the impact a new payment might have. Lenders will total all of your regular monthly payments and obligations and average it against your income. If your debt-servicing ratio is below 40% including the new loan payment, lenders will see you as a better credit risk and will consider the loan payment affordable. If you’re ratio exceeds the 35-40% mark, you will want to lower your monthly debts. At this point it is a good idea to create a monthly budget and monitor your spending very closely. Consider speaking with your credit card companies and see where you might be able to qualify for lower interest rates. Create a monthly spending plan to help you save money. You’ll have to lower your monthly payments as much as you possibly can before you apply for your loan. Adding your spouse to the application might also help as you might be sharing monthly expenses.

Ingredient#3: Loan-to-value ratio

Another consideration that affects your interest rate is the loan-to-value ratio. This ratio helps you to determine how much money your lender will advance on a particular vehicle (at the best rates). By dividing the loan amount by the property’s value you can determine the Loan to value ratio. If your loan-to-value ratio is above 75%, lenders may consider the vehicle’s value to be too risky. The trick here is to make sure your loan-to-value ratio is below 75%. You can do that by finding a less expensive vehicle or saving for a bigger down payment. Keep these big three factors in mind as you prepare for a loan, and you could find yourself enjoying Huge savings on your new car.