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Buying a car is a big decision, and unless you're paying in full with cash, it usually involves financing. That means you're not just shopping for a vehicle—you’re also shopping for an auto loan. And like any major financial commitment, understanding how auto-loan interest rates and terms work can save you a lot of money and stress in the long run.

As a Consumer Loan Manager, I’ve worked with members at every stage of the car-buying journey—from first-time buyers unsure where to start, to savvy shoppers trying to refinance for a better rate. One thing I’ve learned: the best loan isn’t always the one with the lowest payment, it’s the one that fits your full financial picture.

Here’s a breakdown of what you need to know before you sign on the dotted line.

Interest Rate vs. APR: Know the Difference

• Interest Rate: This is the percentage the lender charges on the loan, essentially the cost of borrowing money.
• APR (Annual Percentage Rate): This includes the interest rate plus any fees or additional costs. It gives a more accurate picture of the total cost of the loan.

Tip: Always compare APRs when shopping for loans, not just interest rates.

What Affects Your Auto Loan Interest Rate?

Several factors can influence the rate you’re offered:

1. Credit Score
   The higher your score, the lower your rate. A score above 700 typically gets you the best deals.
2. Loan Term
   Longer terms (like 72 or 84 months) often have higher rates because they’re riskier for lenders.
3. New vs. Used Car
   Loans for new cars generally come with lower interest rates than loans for used cars.
4. Down Payment
   A bigger down payment reduces the amount you need to borrow—and can often get you a better rate.
5. Lender Type
   Banks, credit unions, and dealerships all offer loans—but rates and terms vary. Credit unions often have the lowest rates.

Short vs. Long Term

Short-Term Loans (24–48 months)

• Lower interest rates
• Less paid in total interest
• Higher monthly payments

Long-Term Loans (60–84 months)

• Lower monthly payments
• Higher interest rates
• You may owe more than the car is worth (a.k.a. being “upside down”)

How to Get the Best Auto Loan Deal

• Check Your Credit Score First
• Get Preapproved by a few lenders before you walk into a dealership
• Compare APRs, not just monthly payments
• Avoid Add-Ons the dealership may try to roll into your loan
• Don’t Stretch Your Budget for a longer term just to afford a more expensive car

Over the years, I’ve seen how just a little knowledge about loan terms and interest rates can empower members to make better choices. Whether you’re buying new, used, or refinancing, knowing what to look for can save you more than you might think.

Auto loans can be a helpful way to afford a car—but they’re also a major financial commitment. The interest rate and term you choose can have a big impact on how much your car actually costs over time. A little research now can save you thousands later.

Before you buy, take a moment to understand your options by giving me a call.