You have won half the battle if you have successfully negotiated for the best price. You will need an auto loan if you do not have money to pay for it outright. Shopping around and comparing deals can help you choose the most affordable deal. Getting a pre-qualified approval letter from at least three lenders is the key to succeeding in grabbing the deal you want.
Be mindful of fees you pay on top of interest rates while comparing deals. A pre-qualified letter cannot reveal the actual interest rates you will be charged as that could be determined after an affordability check (a thorough check of your credit report that results in hard footprints and your income statement).
Some dealers might want you to have an offer for a loan. Otherwise, negotiations will likely break down. Here is what you need to do to get the most affordable rates:
Before bumping into the showroom, you should carefully check whether your budget has room to make payments.
The estimated monthly payments can be determined using an online loan calculator. Bear in mind the unexpected financial blow down the line. Can you keep up with payments in spite of that?
Look at your credit report. It must not have accounts that you do not identify. Make sure you get all errors fixed before you formally apply for a loan in Ireland. Your credit score should be in good condition. A poor credit rating calls your credibility into question, and therefore, qualifying for a lower interest rate will be a tough battle to win.
The following table demonstrates the average interest rates for new and used auto loans varying by your credit score:
|
Credit score |
Average interest rates for new car loans |
Average interest rates for used car loans |
|
Excellent |
5% |
7.4% |
|
Good |
7.2% |
9.7% |
|
Fair |
9.5% |
17.3% |
|
Poor |
14.3% |
20.9% |
|
Very poor |
18.7% |
24.5% |
A blemished credit report can prove to be very expensive in the long run. Experts advise improving your credit rating before applying for a loan, as it will help you get the best car loan rates in Ireland.
In spite of taking the aforementioned steps, you cannot have your previous missed payments and defaults removed from your credit report. You can do nothing about them, but you can prevent your score from being worsened. Older inquiries and missed payments will not affect your lender’s decision much.
You can get prequalified letters from multiple lenders to gain an insight into the interest rates they will charge when you formally submit your application. These estimated rates will help you pick the most affordable lender. The actual rates will likely be higher as they are subject to fees and are decided after a hard check of your credit file.
Prequalifying rates are determined after soft inquiries that do not ding your credit points. Some lenders may run hard search prints. Make sure you get clarity on that before receiving any prequalifying letter. Get details about fees from their customer support team if the letter does not disclose any information about it.
An auto loan requires a minimum of 10% of the value of your car as a down payment, but you can increase it as much as you want. This will lower the loan-to-value and, therefore, the monthly payments.
You can take out a car loan from car dealers or private lenders. Car dealers will offer you HP (hire purchase) and PCP (personal contract purchase). Dealership financing works differently from auto loans you obtain from your private lender. Both types of financing come with strings attached. The bare minimum down payment for HP can be 15%, while PCP deals will attach conditions related to mileage.
Payments under HP contracts are made the same way as auto loans from lenders. Each monthly instalment is amortised. However, PCP deals involve only interest payments every month and a balloon payment at the end of the contract. You have an option to take it back or swap it with another car at a new PCP contract.
The length of repayment term you choose is another factor that decides how much a car loan will cost you in total. Shorter repayment terms are more favourable to you as you will be paying low interest in total due to the early settlement of the account.
Lenders might put you on a longer repayment plan to reduce the size of your monthly payments, but the extended term will accrue interest on the unpaid balance. This means you will pay more interest in total. You can request your lender to put you on a shorter repayment plan.
There is no guarantee that you will be successful in getting the nod for a car loan. Of course, you will have to submit your application to another lender but do not do it immediately. There must be a gap of at least two weeks between applications. Otherwise, hard inquiries as a result of new applications will quickly plummet your credit points.
You can avail yourself of better interest rates on your car loan by putting down a larger deposit. Compare interest rates so you pick the most affordable deal. As your credit score plays a paramount role in getting lower interest rates, improve your credit rating. You should always ensure the repaying capacity despite unexpected financial problems.
