When it comes to determining a car loan interest rate, auto lenders often base their calculations on a number of factors. Besides a multitude of these factors is your credit score. A 700 credit score is generally considered a good score. With a credit score of 700, you can easily acquire personal loans, auto, and mortgages in relation to other scores. In essence, lenders are more likely to partner with borrowers with such credits as they are perceived as less risky. In that case, it is relatively essential to know where to get a credit from.
While a 700 credit score offers a range of auto loan options, you can get better deals by boosting the score—of course; one way is by consulting a credit repair company of your liking. On the other hand, knowing the average interest rate to expect within your credit range enables you to budget effectively for the car purchase. It also gives you a clear picture of what to expect in various encounters.
As a general rule of thumb, having a higher credit score entitles you to lower auto interest rates. But, conversely, the lower your credit score is, the higher the interest rate becomes. So, with a 700 score, you should expect an interest rate of between 4.52% to 5.34%. But this rate can considerably vary depending on the insurer and other factors.
Average Auto Rates for Good Scores
Anything between 700 and 749 is considered a good score by lenders. Though their credit report may contain a red flag or two, borrowers within this range are considered low-risk, according to most creditors. In essence, the score proves that they have properly managed their past debts as agreed and are most likely to honor their subsequent debts.
The lender might decide to charge more rates on interest regardless of your good credit. For example, if the interest rate set by the federal reserve that lends them money is considerably high, the bank and other lenders will consequently raise their interest rates. But the rate will be relatively lower if the Fed lowers its auto interest rates.
On the other hand, the duration you intend to repay the loan affects the auto interest rate. The higher the duration, the higher the interest rate you are charged. For instance, a two-year repayment will often incur lower rates than a three or four loan term. In essence, lenders perceive that whenever borrowers repay their loans within an extended duration, they are more likely to stop repaying at some point, hence subjecting them to high risks. So the interest rates are charged high to recoup early most of the loan before such happens.
Lastly, interest rates for used cars are often higher than new cars. First off, it’s often hard for lenders to estimate the real value of a used car, resulting in them charging higher interest rates. Additionally, most lenders presume that second-hand car loan borrowers are more likely to default on their loan than new car purchasers, irrespective of their credit score.
New vs. Used Cars Interest Rates
On average, auto manufacturers often offer various incentives to new car purchasers, encouraging more sales. Alongside such incentives are lower interest rates by their financing companies. Given that business is partially a competition, other lenders like banks and credit unions may also lower their rates for new car purchasers to keep up. Unfortunately, that is contrary and unfortunate to used car buyers, as lenders put no incentives in place. That means you are bound to pay higher interest rates whenever purchasing a used car than a new one. For example, while the average auto interest rate for a new car is anywhere between 4.52% and 5.34% on a 700 credit score, the average auto interest rate for a used car is 7.73%.
As noted before, a 700 credit score falls under a good credit score and relatively attracts lower interest rates. You will be well perceived by lenders such as banks and credit unions with such a score since you’ve incredibly managed your recent debts as per the loan agreements. But keep in mind that various factors will add or subtract to the final interest rate, and your lender might as well use a certain criterion in calculating their interest rate, which consequently gives a range from one lender to another. But the rule of thumb is to keep a good credit score –anything around 700 up—and constantly improve it.