When buying a car, it is very common to borrow money to finance the purchase. Since the loan is often at a relatively large sum, it is interesting to find a car loan with the best interest rate possible. A new car often costs well over USD 200,000 and most of this is usually financed as a loan. If it differs when a few percent in interest rate, this will in a few years be a considerable sum.
How big is interest on a car loan?
It is not possible to say an exact level of interest rates for car loans as these are constantly changing. What you can do, though, is talk a little in general about what level the interest rate on a car loan usually has in relation to other types of loans.
A little quickly you can say that the interest rate on a car loan is relatively low, it is not the lowest but far from the highest. The reason why it is a fairly low interest rate is that the loan has collateral in the form of the car being purchased. This makes the bank feel secure when they lend out the money as they know that the loan amount can be claimed in case the payments were not taken care of. The car can then simply be sold and the money from that sale is used to repay the loan.
The fact that this is not the cheapest form of loan has to do with a mortgage being considered even more secure in the eyes of the bank. In the eyes of the bank, it is safer for a house to keep its loan value than for a car to do so.
However, the interest rate on a car loan is clearly lower than it is on eg private loans that have no collateral. Therefore, if you look up the various options when you buy a car, you should be able to feel quite confident that you are not paying too much interest.
Car loans in the form of mortgages
A small tip for you who own a house that is not fully mortgaged is to look up the possibility of increasing or taking out a loan on the home instead of a clean car loan. If you can do this, you will normally get away with a lower interest rate plus you have greater choice of repayment period. There are no requirements if you borrow in this way that the money should just go to the home itself, something that suits you who want to buy a car very well.