Auto financing or car financing is something that we all have to deal with at some point in our life. The world has changed now; with rapid development in technology, vehicles have become affordable for almost every working person. It is one of the biggest purchases a person makes.

When you get a car loan, it has an interest rate. Interest rate here is the premium you pay for getting a loan for your vehicle. While researching about auto finance, it is likely that you will come across the word “APR.”

What is APR? And how is it different from interest rate?
The interest rate is what you are charged for getting a car loan, for example, 2.5% whereas your APR (annual percentage rate) is the true cost of the money that may include any fees the bank imposes for that car loan that you are getting.

The interest rate you get for your car loan depends on your credit score. According to your credit score, the interest rate may vary from 0-16%. The interest rates depend on various factors but the majority percentage depends on your Beacon score.

What is Beacon score?
Beacon score is the same as credit score, which refers to your creditworthiness. The three major credit reporting firms: Equifax, Experian, and TransUnion prepare a report of your credit history. FICO (Fair Isaac Corporation) determines your credit score. Therefore, if you get It is important to note that a credit score from other credit monitoring agencies, except FICO, will not be considered an actual Beacon score. If you provide this credit score to any car loan company or mortgage company, they will not accept it. Every bank and lender agencies only choose the credit score by FICO. The interest rates for your car loan will thus be determined according to your credit score by FICO.

What credit score does one need to have to get a car loan?
A person’s credit scores are accessed to determine whether or not they are eligible for a car loan. But there are several other things that banks and mortgage companies look for. So, you can get a car loan if your Beacon score is 400 or 800.

The other factors that banks and mortgage companies use to determine your car loan interest rates are:

• The amount of money you are putting down
• The risk taken by the bank to provide the loan to you
• The number of auto loans you have had in the past
• The payment history of your auto loans

Banks generally look for a credit score of at least 600 and higher for one to get qualified for an auto-loan with less money.

Some facts about car loans

• The average auto loan interest rate is 4.21% (60 months loan) in the country.
• The APR (annual percentage rate) for car loans is somewhere between 3%-10%.
• There is only one credit pull for a car loan. If you go to different banks for car loans, you will still get only a single credit pull. This is a law.