If you’ve read our other blog posts, you’ll be familiar with our “Buy here, pay here,” mentality. We are the only in-house financing dealership in Winnipeg, meaning we lend our own money. This allows us to offer more flexible interest rates!
Though most of us are familiar with paying interest rates — whether it be on your credit card payments, mortgage or a car loan — it’s not often clear why our interest rate is the percentage it is.
Ultimately, your interest rate is determined by the risk the lender is taking by borrowing to you. The lower the credit score, the greater the risk.
These are the four key factors that affect how much your interest rate is:
Something we always remind our customers is that credit history is more than just your credit score. It provides lenders with some background information regarding how responsible you are with repaying loans.
With that being said, your credit score does play a role in determining your interest rate. Lenders usually categories credit rates like this:
- Credit score below 500 = high-interest rates that may negatively impact your ability to get approved for loans
- Credit score in the mid ranges = slightly higher interest rates
- Credit score above 750 = low-interest rates and possibilities to qualify for a 0% interest rate
In general, the longer the loan term, the higher the interest rate. This is because a longer loan term represents a greater risk to the lender. They ultimately become dependant on your creditworthiness and repayment over a longer period of time.
On the other hand, a shorter loan term increases your monthly payment rates, meaning you may pay less interest but you’ll need to be able to afford higher monthly payments.
Our suggestion: if you want the lowest possible interest rate, choose a shorter loan term, however, you must ensure you’ll have enough to cover the monthly payments. If your income doesn’t allow you to increase your monthly payments, you’ll have to come to terms with paying a higher interest rate.
Having cash saved for a down payment is the easiest way to lower your interest rate. Why? Because it means the lender is borrowing you less money, which ultimately decreases their risk. Down payment also show lenders you’re serious about your commitment to repay the loan.
Though it isn’t a necessary requirement in order to be approved for a loan, it does put you in a better position for receiving a lower interest rate.
Other financial factors
At Birchwood Credit Solutions, we take into account additional factors than what we’ve mentioned above. We understand that life happens and your credit score isn’t necessarily reflective of your credibility as a borrower.
We specialize in working with customers who are new to Canada and haven’t yet built any credit, who have recently gone through bankruptcy, who have had a divorce or who are young adults without a long credit history. We gather information that reflects your financial habits, such as your monthly income, past loan terms and work history.
Here are some of the documents we suggest bringing with you to the dealership to make the process as hassle-free as possible:
- Pay stubs
- Employer contact information
- Drivers license
- Letter of recommendation from your landlord
Is your vehicle costing you more money than it should? Get in touch with the team at Birchwood Credit Solutions today to find out more about our fast and easy car loan application process. Our goal is to get you approved for car financing in Manitoba and into your dream car as quickly as possible. Car shopping doesn’t have to be an uncomfortable experience.
Related blog posts:
- 6 Tips for Negotiating a Low Car Loan Interest Rate
- Car Finance for Students: 4 Steps to Getting Approved
- 5 Credit Misconceptions That Can Lead to Bad Credit
- Pre Approved Car Loan: How Does It Work?
- How Long Does Bad Credit Stay on Your Credit Report?
- Top 10 Longest Lasting Cars On The Road
- What to Expect When Buying a Car with Bad Credit
- 5 Reasons Why You Should Check Your Credit Score Regularly
- What Happens After You Fill Out Your Application?
- How to Trade in a Financed Vehicle