Looking for a car loan might sometimes feel like an endless search. With so many options, it can be difficult to narrow down what the best option is for you.
One major aspect to consider is the APR, and finding a good APR can be the key to finding the right car loan. Having a short loan with the lowest APR you can find typically comes with the bad credit auto loans best financial benefits. You can pay the loan off quickly and accumulate less interest, which will cost you less money overall.
What is APR, anyway?
APR is the Annual Percentage Rate on a loan. It includes the interest rate and any other fees you pay to finance a car each year. The interest rate does not include the fees charged for the loan, but the APR does, making it a measure that encompasses the total cost of borrowing money each year.
When looking at the cost to borrow money, it is key to consider not just the nominal interest rate, but the APR. APR can include closing costs, discounts, broker fees, account fees, etc. This helps you to compare two loans accurately.
What kind of APR can I get?
The APR that is available to you depends on several factors, but most importantly your credit score. If you have a very high credit score, your interest rates will be lower, thus you will get a lower APR.
If you have a low credit score (think 500), you may only be able to get approved for loans with an interest rate of as high as 15-18%, meaning that the overall APR you can access is much higher.
If you are purchasing a used car, the APR is typically going to be higher than that of a new car. This is because used cars are seen as more of a liability to lenders, with a higher likelihood to have issues that may render the car unusable, resulting in you having to default on the loan. This is something to consider when deciding to purchase a new versus used vehicle with a loan.