If you’re in the market for a quality used car to take on the roads of Miami, Doral, and Hialeah, there’s a few important things to consider when it comes to financing. Whether you’re a first-time buyer or returning customer, understanding how interest rates affect your monthly payment is important to guaranteeing your dream vehicle is a sound investment.
That’s why the team at Braman Honda in Miami created this helpful guide to interest rates on used cars. We’ll cover all the basics, so you can feel confident when choosing the terms and rate that best fits your lifestyle.
What’s an APR on an Auto Loan?
When you sit down with our financing team, you’ll be provided a range of financing options secured by a local lending service. To provide this service, lenders will add a fixed interest rate on top of the vehicle price. Lenders are required by law to use an APR or “annual percentage rate” which sets the percentage the borrower must pay each year of the term. This gets broken down and added to your monthly payment.
Your APR is determined by current market conditions as well as several personal factors including:
- Credit score,
- Loan term,
- Vehicle age and type;
as well as your overall debt-to-income and employment situation. The lending service needs to ensure your ability to pay back the loan, so the better these factors look, the greater the likelihood of securing a low APR.
How to Choose a Loan Term
36 months? 60 months? 72 months? Determining the length of your term will have a major impact on how much you end up paying in the long run. Generally, the shorter your term, the lower your interest rate. Lenders want to recoup their loan as quickly as possible and will incentive buyers by offering rates that are more favorable to your budget.
Likewise, the longer your loan term, the longer you’re paying the APR which can end up costing thousands of extra dollars. Ideally, if you’re choosing a used vehicle you should budget so you can pay off the loan within 36 months. The reason is because a vehicle’s value depreciates quickly, and you don’t want to be stuck in a situation where your vehicle is worth less than the amount your paying.
How Does My Credit Score Affect My Interest Rate?
Simply put, your credit score is a 3-digit number that gives lenders an idea of how you manage debt and your ability to pay off the loan. The two biggest factors that go into your score are outstanding debt and payment history.
Holding onto large amounts of debt will negatively affect your score and leave you with high interest rates. If you’re routinely late or miss payments, that also will send your score crashing. A good score can mean the difference between acquiring an affordable rate or one that’s far out financial reach.
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Learn More About Interest Rates on Used Cars!
We hope this guide offered some good insight and tips when it’s time to negotiate terms for your next used vehicle. If you’re a driver in Miami, Doral, or Hialeah ready to take the next step, simply stop by Braman Honda in Miami or go online to schedule an appointment with our friendly and experienced financing team.