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Why Car Loan Rate & Term Matter

Buying a car is one of the biggest transactions you will make in your lifetime. For that reason, many people rely on auto financing to help them get the car off the lot and into their garage.  Two elements you need to pay special attention to when you start shopping for car financing is car loan interest rate and loan term. This article will cover each term in detail so you can make a smart decision when it comes to applying for a vehicle loan.

Auto Loan Interest Rate

The interest rate is the proportion of your loan that is charged as interest. Your auto loan rate will have an impact on how much you end up paying for your car at the end of your loan term. The rate you receive is highly dependent on the health of your credit score. The higher your credit score, the lower your interest rate will be. The below example displays why the interest rate you receive on your credit union auto loan matters.

Why Car Loan Rate and Term Matter - Auto Loan Interest Rate


Billy receives a $25,000 auto loan with an interest rate of 2.99% for 60 months. Thus, his monthly auto loan payment would be $449.11. Over the course of the loan, the total interest paid would be $1,946.37, and the total amount paid for his car would be $26,946.37.

Nancy receives a $25,000 auto loan with an interest rate of 5.00% for 60 months. Given this, Nancy’s monthly payment would be $471.78, which is not a huge increase from Billy’s monthly payment of $449.11; however, the total amount of interest Nancy will pay for her vehicle will jump to $3,306.88. This bumps the total cost of the car up to $28,306.88, meaning Nancy will pay $1,360.51 more than Billy for the same car.

Josh gets pre-approved for a $25,000 car loan with an interest rate of 14.5% for 60 months. Given this situation, his monthly payment would be $588.21, and he would end up paying $10,292.41 in total interest over the course of his loan. Thus, the total price of his car would jump from $25,000 to $35,292.41. This means Josh would be paying $8,346.04 more than Billy for the same car.

By examining the above example you can see that Josh, who has an interest rate of 14.5%, will end up paying $8,346.04 more than Billy and $6,985.53 more than Nancy for the same car due to his higher interest rate. This example does an excellent job of showing just how much of an impact your interest rate can have on your finances.

Why Car Loan Rate and Term Matter - Auto Loan Term

Auto Loan Term

Your auto loan term is the amount of time you have to pay back the balance of your auto loan. Many people choose to go with a longer auto term to reduce their monthly payments; however, doing so may not be the best financial decision.

While lowering your monthly payment may help you in the short-term, extending the term of your loan will result in you paying much more interest over the duration of your loan, and thus increasing the total cost of your vehicle. The below example will help paint the picture


Billy gets a car loan for $25,000 at an interest rate of 2.99% for 36 months. Given this scenario, his monthly payment would be $726.92, the total interest paid over the term of the loan would be $1,169.12, and the total amount paid for the car would be $26,169.12.

Nancy gets a $25,000 auto loan with an interest rate of 2.99% for 84 months. In this scenario, her monthly payment would be lowered to $330.22, but the total interest paid would jump to $2,738.45. This means Nancy would end up paying $27,738.45 total for the same vehicle Billy is paying $26,169 for.

As you can see from the above example, choosing a longer auto loan term will reduce your monthly payment, but will result in a higher final price of your vehicle. To help you find the best auto loan rate and term for your current financial situation, we suggest using a car loan calculator, such as Launch CU’s auto loan affordability calculator.

Why Your Credit Score Matters

Your credit score plays a major role in helping financial institutions determine how much to lend to you as well as the rate you receive. Those with excellent credit scores are more likely to get their auto loan applications approved at a lower interest rate. If you have bad credit, you should not be discouraged, as it is quite possible you could be approved for financing. Just be aware that your interest rate may be on the high end.

If you haven’t checked your credit score in awhile, we recommend doing so before you apply for a car loan. In addition, take time to review your credit report by visiting You are entitled to a free credit report once per year from each of the three major credit reporting agencies. Your credit report will allow you to look over your credit history to uncover any potential issues or errors that could prevent you from being approved for financing.

Why Car Loan Rate and Term Matter - Why Your Credit Score Matters
Why Car Loan Rate and Term Matter - Credit Not Up to Par? Work Towards Improving It!

Credit Not Up to Par? Work Towards Improving It!

If your credit score is not where you would like it to be, there are things you can do to start repairing it. Keep in mind that it’s impossible to repair your credit score overnight. Repairing credit will take time and effort. Here are five credit repair tips you can start implementing today that will improve your chances of being approved for affordable auto financing in Florida.

  • Ensure your credit reports are accurate. Visit to request your free credit report. If you find an error in your report, this article will show you how to file a dispute.
  • Fix your late payments. Payment history makes up 35% of your credit score. If you are able to get current on your bills, your credit score will start to improve drastically.
  • Clear up collections accounts.
  • Pay all of your bills on time, every time.
  • Stop applying for new credit cards. Length of credit history makes up 15% of your credit score. Opening new credit accounts will lower your length of credit history, and could reduce your score.
  • Keep your credit utilization low if possible. We recommend keeping your utilization below 30%.

Final Thoughts

As you can see, the interest rate and loan term you obtain on your car loan will have an impact on your finances. That’s why it’s essential to conduct proper research to help you find the best auto loan rates in Florida. It’s also an excellent idea to use free online tools like an auto loan calculator to help you find a rate and term that’s right for you. Lastly, before you start shopping, get pre-approved for financing to save time and money at the car dealership. Knowing how much you can afford before you show up at the car dealer will give you additional bargaining power, and ensure you do not get taken advantage of.

View Launch CU’s auto loan rates and apply online today for financing.

Why Car Loan Rate and Term Matter - Final Thoughts

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