It may come as a shock when you compare the interest rate that you get when taking out a loan for a new or used car with that which is splattered all over the newspapers or shouted at you from the TV screen, the two can vary quite a bit from. One the biggest influence on your rate is your credit rating. Your credit history and credit score tell loan companies a lot about your spending habits and are designed to give them an idea of what their risk is if they loan you money. They often raise the interest rate if your loan is seen as high-risk.
A major difference that affects a car loans interest rate is the length for which the loan is to run. Typically, the shorter term the loan is for, the lower the rate. Keep in mind that the shorter the term, the higher your payments will be.
At the Dealership
Although these things effect the rate you get through a bank or another financial institution, getting your car loan through an actual car dealership may or may not actually work in the same way. When you take out a car loan with a car dealership, you have to remember that the Finance and Insurance department is often a bigger profit centre than the sales department. The business manager sends your credit information to the lender(s) they deal with. The business manager then takes the lowest approved interest rate and marks it up. The marked-up amount is the dealership's profit on the financing. There is no law saying the dealer has to reveal that mark-up to you. This is why you have to keep your negotiating hat on throughout the process! This financing is really just another product the dealership sells.
Factory and dealer rebates, 0% APR, and other special incentives
I'm sure you can picture it, you're watching late-night TV, and between the commercials you see a car ad that offers 0% interest or a £2,000 rebate on a car you've been thinking about buying for months. Wow! What a deal! You have to get to the dealership now! So the next day, you do just that. Firstly, it would pay to find out what those offers mean. With, what is known as the factory-to-consumer rebate, there really is no catch. These are rebates the car manufacturer offers directly to you as an incentive for you to buy a specific car. They offer them when they see a larger number of that particular car sitting on car lots than they would like to see. So, in order to move the cars off the lots they offer the rebate. The rebates are not part of the dealer's package and shouldn't even come into play when you're negotiating the sales price with the salesperson. Don't let them try to use the rebate as a way of making the purchase price lower. You have the choice of applying the rebate to your down payment (or not).
