Alberta car loans: top five interest rate determinants
Posted: May 07, 2018
No matter how far you’ve gone in your quest for a new car, if you can’t afford to sign the dotted line just yet, then you are obviously in need of an Alberta car loan.
Getting car financing in Albertacan be a major milestone especially when your finance situation is less than perfect.
Usually, the total cost of financing a vehicle involves the actual cost of the vehicle plus the cost of borrowing the money. Since lending to people with bad credit history is considered a higher risk for lenders, it is very common for bad credit loans in Albertato come with high interest rates (at least higher than average).
However, these rates are still dependent on certain factors. Let's quickly look at them:
When you apply for an auto loan, your credit score is one of the major factors that determine how much interest you're going to be charged. It summarises your payment history as well as the lifespan of the credit.
In Canada, credit scores usually range from 300(lowest) to 900(highest) with 650 often accepted as the average. With a high credit score, getting an auto loan is much easier, and you will feel more confident approaching the negotiating table.
Generally, a high credit score attracts a lower interest rate on anyAlberta car loanwhile a smaller score attracts a higher interest rate.
Vehicle's Age and Model
New cars and used cars do not have the same resale values, as such their interest rates usually differ. New cars will depreciate much faster than 1 low mileage vehicle that is 2 years old.
Since your vehicle serves as the collateral for your loan, a lender is entitled to take back the car and resell it if you default the loan. This will enable them to recover any losses your deferment might have caused.
New cars tend to have high resale value which is why they are often offered at a lower rate. But this is not usually the case for used cars.
Many popular car models are also valued more than the less popular models when reselling. As a result, the later usually attract higher interest rates.
Debt to Income Ratio
The ratio of debt-to-income simply shows lenders whether you are capable of paying back a loan within a given time frame.
A low debt-to-income ratio is desirable as it highly improves your chances of getting an auto loan. In this case, a lender will have more confidence in your ability to pay back since you have more disposable income that can be used to service this debt. This reduces the risk of lending and will automatically qualify you for a lower interest rate.
However, a high debt-to-income ratio can limit your chances of getting approved for car financing alberta and ultimately leads to a higher interest rates. This is because even if all of your disposable income is spent in servicing your debt, it still may not be enough to satisfy the terms and conditions of the loan. As such, you will qualify for a lesser loan amount, spread over a longer period of time, with a higher interest rate.
Amount of Down Payment
Another factor that can influence the charges that come with an auto loan is the size of your down payment.
A large down payment translates to lesser risk for the lender. As a result, the loan, as well as the interest rate is greatly reduced.
However, a little down payment or nothing at all, will ultimately result in a higher interest rate and will increase the duration of the loan.
The number of years you plan to spend in paying off an auto loan will greatly effect the terms of the loan. The longer the term, the more money you will pay in interest rates.
A short loan tenure will ultimately lead to a more favourable deal regardless of the amount you plan to borrow.
If you want to reduce the overall charges of a bad credit car loans alberta, you should work towards paying off theprinciple loan amountas fast as possible. Taking 1 less year to pay off your loan will save you a lot of money in interest charges.There you have it. You are now armed with enough knowledge to approach the negotiating table. Once you're ready to get the best deal, contact Free Auto Credit and save yourself some time and money!
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