What Does APR Mean When Buying a Car?

A great auto loan can save you hundreds, if not thousands of dollars when buying a car. But, in order to find a good car loan, it’s important to know how to properly compare your options. One of the most important factors to consider when shopping around for an auto loan is the Annual Percentage Rate, or APR. The APR indicates how much you will have to pay in interest and other fees each year in order to purchase the vehicle. A high APR can significantly increase how much you pay over the course of your loan term, which is why it’s crucial to find a loan with a good rate.

What is a Good APR?

Auto loan APRs can vary widely based on a number of factors. Understanding what can impact APR will help you find the best rate for your circumstances. Here are the two main factors that can impact your APR:

• Credit score: Your credit score is generally one of the most important factors that will determine what kind of APRs you will have access to. With most financial institutions, higher credit scores will get you loans with lower APRs. That said, some banks and credit unions function a little differently. For example, members here at People’s all get the same great rates regardless of their credit score or history.
• Age of vehicle: Newer cars that have not had a previous owner generally have lower APRs, largely because older or used vehicles have depreciated value and are therefore riskier to finance. To accommodate the extra risk, most lenders will put higher interest rates on old or used cars.

How Can I Get the Best APR?

Finding an auto loan with a great APR can make your vehicle much more affordable in the long run. So, how exactly can you get the best APR for your situation? Here are a few ways you can get a better APR on your car loan:

• Maintain a good credit score: Having a higher credit score will give you access to more competitive APRs, which is one of the reasons why it’s useful to keep your score as high as possible. You can boost your credit score by making payments on time, paying more than the minimum amount if possible, keeping your accounts open, and remaining well below your credit limit.
• Shop around and compare rates: Comparing auto loans from different lenders is a great way to find competitive APRs. In addition to the APR, it’s also important to look at the loan amount and loan term – or length – to find the best fit for your unique situation.
• Consider refinancing your auto loan: Sometimes, you need a car loan ASAP. This makes it difficult to compare rates and may leave you with an auto loan that has a high APR. If that’s the case, you may be able to refinance your loan with a different lender that can offer you a more competitive rate.