Car Buying 101: Understanding Your Rate

woman shopping for auto loan best rate

We polled our loan officers here at the credit union and by far, "What's your rate?" was the most frequently asked question they were asked by our members.  It's often the first question they hear from members seeking car loans, too. But getting the best rate on an auto loan doesn't always mean you're getting the best deal. Here's why:

The short answer to "What's your rate?" is that a loan rate is based on the length (or term) of the loan and the borrower's credit rating.  You can see our current vehicle loan rates here.

How Your Loan's Term Affects Your Rate

The more time you need to pay back your loan, the higher your rate may be. The rate you see quoted in almost all advertisements is for the shortest possible term.  Read the fine print at the bottom of the ad and chances it'll say something like, "*For loans up to 24 months." Also the quoted rate in one dealer's ad may be different from the quoted rate in another dealer's ad based on the term being advertised. According to Car and Driver magazine, longer car loan terms are becoming the norm: The average term length for a loan was 69 months for new cars and 65 months for used vehicles.

The bottom line: read that fine print!

How Your Credit Affects Your Rate

The better your credit, the lower your rate. The rates you see advertised at a financial institution will have a footnote that reads something like:

"Rates shown are the lowest possible rates currently offered. Other rates are available, based on your credit profile and loan terms."

Even a small increase in your credit score can save you big bucks over the life of a loan.  If you don't get the best rate offered by Hanscom FCU and your score improves over time to qualify for that lowest rate, we'll adjust your loan's rate for the remainder of your loan term upon request.

So, while you're shopping rates, take the time to review your credit report and score. If you're not sure how to get or read your credit score, sign up for a free credit score review.  Our experts will color code your credit report for you and walk you through how to read and understand it, then give you tips to improve your score.

Other Factors to Consider

It feels good to brag about getting the best rate.  In fact sometimes you can get dealer financing at 0% on certain models.  But with that great rate, you often have to give up a rebate that can be worth more than the interest you will save.  Also, the term for 0% financing is usually quite short, which can make your monthly payment large.

Other points to consider:

  • Focus on negotiating the lowest price for your vehicle. Once you've done that, then look for the best rate and monthly payment that meets your budget.
  • Some financial institutions - like Hanscom FCU - offer discounts on rates. These can include things like automatic payments from your checking account, economical vehicle purchases, and/or military service.
  • Inquire about dealer rebates and other promotions and ask the salesperson to show you the numbers.


You can learn more about purchasing a car by downloading our free car buying eGuide.  This guide will introduce you to the other important factors in the car buying process you need to understand before you step into a dealership.


auto financing eGuide

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About Author

Bill Burpeau
Bill Burpeau

Bill Burpeau is a Financial Wellness Coach at Hanscom FCU. As a Credit Union Certified Financial Counselor, he is an enthusiastic advocate of everyone being engaged in their financial health, educated and empowered to make the best financial decisions for themselves every day. He constantly studies and is up to date with the latest financial management concepts and technology. Bill is a graduate of Texas A&M University with a BBA in Business Management and served in the U.S. Navy as a Supply Officer.

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