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Car Interest Rates - How to Get the Best Interest Rate on Your Auto Loan

dealer consumers buying offer

When buying a car, consumers fail to factor in the cost of fuel, maintenance, insurance and auto loans. Your total monthly car payment, excluding gas costs, should not exceed more than 20% of your monthly income after tax deduction. Edmunds offers a helpful calculator that prospective car buyers can use to determine the price range you can easily afford.

At the time of purchase, you have an option of buying the car through an auto loan, leasing it or paying cash. When you choose to buy a car, the dealer arranges for an auto loan through the dealership’s lender. Auto loans range from 3 to 5 years. The longer you take to pay the loan, the lower your monthly payments will be although you may have to make a large down payment.

How much you pay every month also depends on the auto interest rate at the time of purchase. As of June 2010, the interest for a new car for a 60 month period is 6.93% and for a used car for 36 months is 7.67%. Make sure you negotiate the car cost with the dealer. This can help you save a couple of dollars off a new car.

Auto loans are offered by several types of insurers such as credit unions, online lenders and the dealer or manufacturer. Credit union interest rates are lower than those offered by banks. You can also get a home equity loan for your car, which also offers some tax benefits.

A lot of consumers get sucked into buying cars from dealerships that offer 0% financing. Zero percent deals often cost you more because the dealer raises the price of the vehicle to recover costs.

Choosing between different loan options is confusing – the determining factor should be the APR or annual percentage rate. A really low interest rate means that you will be paying somewhere else during the loan period. For example: consider that the average auto interest rate is 7%, for the first 2 years you are making payments at a 3% APR while for the next 3 years, you could be making payments at 9-10%.

Experts at BankRate.com suggest consumers to shop for a loan before they buy a car. Some internet loan companies offer good rates and may approve the total finance amount before you go car buying. BankRate also recommends that consumers should not take an auto loan from the dealer because of the inflated rates.

A lot of websites offer auto loan calculators and comparisons, which you can use to evaluate the approximate loan costs. Online lenders like Capital One offer competitive rates but make sure you read through the fine print first, irrespective of where you take the loan from.

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