Knowing this information can help you get a lower monthly payment the next time you purchase a car, so it’s worth your while to do your research.
Here are all the factors that go into determining what your monthly car payment will be.
Your Credit Score
Your credit score will affect the interest rate you receive on your loan, which in turn affects how much your car payment will be.
Someone with a high credit score is seen as carrying a low amount of risk, so lenders will generally give them a lower interest rate. People with low credit scores are seen as being riskier to lend to. If you have a low credit score you can expect this to increase the amount of your monthly car payment.
If you want to increase your credit score focus on consistently paying your bills on time and paying off any outstanding debts.
Your Debt to Income Ratio
Lenders will also take your debt to income ratio into consideration. This is a measurement of how much debt you have, compared to how much money you make through your job and other income sources.
A high debt to income ratio means you have a large amount of debt compared to the amount of money you earn each month. Lenders will look unfavourably upon this and may give you a higher interest rate because of it.
If you’re concerned about this, start working towards paying off some of your debt before shopping for a vehicle. It could end up lowering your interest rate, which will help lower your car payment.
The Size of Your Loan
It goes without saying that the more money you borrow the more you will end up paying each month on your car payment. So, getting a loan for a cheaper car will generally result in a lower monthly payment, compared to a car that’s more expensive.
Depending on your credit rating, and your debt to income ration, a larger loan may also increase your interest rate.
To reduce the size of your loan, consider making a down payment on your vehicle. Even a small down payment can make a difference and help lower your car payment to make it more manageable.
Length of Your Loan
The term of your loan will also affect your monthly car payment. Car loans can be anywhere from three to eight years in length. Both short and long-term loans have pros and cons.
If you opt for a shorter-term loan, you’ll generally get a better interest rate. This is because the lender will get their money back in a shorter amount of time, so it’s seen as carrying less risk. Over the entire course of the loan, you’ll end up paying less than if you chose a longer-term loan. However, because you’re paying it off in a shorter amount of time your monthly payment will be higher.
Long-term loans have the benefit of providing you with a smaller monthly payment. By spreading your payments over a long amount of time you can get your monthly payment down to a more reasonable level. But since these loans usually carry a larger interest rate you’ll end up paying more money overall over the course of your loan.
Although it’s tempting to choose a longer loan to keep your monthly payments lower, it’s a good idea to choose a shorter-term loan if you can afford it.
Age of the Vehicle
While purchasing a newer car may cost you more in the long run, it may help you secure a better interest rate. This is because, should you be unable to repay your loan and your car is repossessed, the lender will have an easier time selling a newer vehicle.
However, if you’re looking for the lowest car payment possible, an older vehicle is likely the better option. Older vehicles are generally cheaper, which means your loan will be smaller. If you’re going to buy an older car just make sure to get it inspected by a mechanic. Repairs and maintenance can be costly, so if there are underlying issues with the vehicle that will eat into any money you might have saved.
How to Make Sure You Get the Lowest Car Payment Possible
A low car payment starts with a good car loan that has a low interest rate. You’ll find that your interest rate will vary from lender to lender, so you’ll want to shop around to see who is willing to offer you the best rate.
You could go from bank to bank to find this out, but luckily there’s an easier way. At Auto Loan Services we have access to dozens of different lenders. When you apply for a loan with us we’ll reach out to our many different partners to find you the lowest rate possible. We can even secure loans for people who have bad or no credit.
The process is quick and easy. Simply fill out a short online application. Once that’s complete a member of our team will reach out to you to better understand your financial situation and what you’re looking for. After that, we’ll get to work finding a car loan that works for you.
We can often secure financing for customers within one day. Once you’ve been approved it’s time to start shopping. To make it even more convenient for you, Auto Loan Services has an inventory of over 5000 cars for you to choose from. Make sure to consider the advice above when choosing your new vehicle. You’ll want a vehicle you’re happy with, but it’s also important to have a car payment that fits within your budget.
When you find a car that’s right for you we’ll deliver your new vehicle right to your door. And if during the first 30 days you’re not completely happy with it you can return and replace it with another one.
Are You Interested in Applying for a Car Loan?
If you’re interested in seeing what kind of loan you’re eligible for fill out our application to get started. We’ll be in touch with you shortly to help you find the right loan for your needs.