A car loan enables a person to buy a car without having to pay the entire amount in one go. Most of these car loans have associated fees and interest rates that are needed to be repaid during the time frame of the loan. There are many dealerships, online lenders, credit unions, and banks in the US that specialize in providing car loans.
An estimate of 44% of adults in the country rely on car loans to pay for their cars. The amount that is borrowed differs depending upon where the new or the old car has been purchased from. A new car loan can be bought on a car loan that has an average interest rate of 5.11% based on the person’s creditworthiness as well as the following factors:

1. Good collateral
Most of the car loans are secured by a collateral to acquire it. Secured loans have a lower Annual Percentage Rate (APR) as compared to unsecured loans. This helps save more money in the long term. However, it poses a risk of repossession of the buyer’s car when the buyer is not able to pay it back.

2. Interest rates and other fees
In order to avail the least rate or fees for the car loan, the buyer needs to fulfill certain criteria as the credit score is the prime aspect. The auto lenders deal with those consumers whose credit score is between 601 to 780. The credit score in the auto loan industry is divided into 5 categories which are super prime, prime, non-prime, subprime and deep subprime.
In the year 2017, the percentage of auto loan originations began to decrease in the categories of non-prime, subprime, and deep subprime. The car loans in the super prime and prime categories increased. Majority of the consumers who comprise the major section of the borrower’s population have a prime credit score.

3. Credit score
When a person is treading on the financial path, they need to keep their credit score in mind when purchasing a car. One has to maintain a decent credit score for maximum efficiency.
If a person manages their finances in a responsible manner, they can improve their creditworthiness. This will result in lowered rates of interest, having higher chances of the car loan being approved, lines of credit, and a stronger negotiating power that will ultimately help the buyer. This will help them secure financial assistance from potential lenders.

4. Penalties to keep in mind
The buyers may also default their car loan payment for several reasons like a higher rate of interest, expensive fees, or higher monthly payments that do not suit the buyer’s budget. The approval of the car loan does not mean that the buyer is in a position to afford the car that they want. This is true in the case of the subprime credit score applicants.