Getting The Best Variable Rate Loans For Your Car

Variable rate loans for new car and truck financing have put 0% auto loans in their place, with the latter almost disappearing. These types of loans are designed to attract new car buyers with a very low starting interest rate and extended terms, but variable rate loans may actually cost borrowers a lot more in the long run.

Variable Rate Loans – The Unknown
Variable rate auto loans are relatively new to the auto loan market. However, they are fast becoming very popular. This is because many lenders are aggressively trying to persuade customers to utilize variable rate auto loans. Lenders do this by making the initial interest rate very low and tempting. Though, depending upon how interest rates fluctuate, the actual rate for this loan may increase as much as 5 to 10 percent over the life of the loan.

While many lenders are placing 5 percent caps or limits for increases on their variable rate auto loans, some lenders have no cap whatsoever. In the case where there is no increase, flat rates can be increased to whatever level the lender feels is appropriate.

In addition, rates for variable rate auto loans are usually recalculated every month; therefore, you may not even see a large interest rate increase coming. Because variable auto rate loans usually also involve extended term lengths, these types of loans are virtually impossible to determine when it comes to figuring out the actual cost up for the loan.

In fact, with variable rate auto loans, it is not uncommon for some lenders to offer terms of up to 84 months. If the current interest rate is increased once or several times, the actual cost of the vehicle could increase by thousands of dollars very quickly.

Choose Your Variable Rate Loan Wisely
If you feel that a variable rate auto loan is in your best interest, you should proceed with caution, and choose the best possible loan and interest rate available. Before signing documentation associated with a variable rate loan, always read the fine print carefully and make sure you understand the maximum amount (as far as the percentage rate) that the loan interest rate can be increased.

If there is no maximum interest rate increase cap, simply walk away. Your exposure to ridiculous interest rates and higher monthly payments is simply too great. You may want to try to negotiate a interest rate percentage cap with the lender. If the lender is an honest and ethical company, the lender should be willing to cap potential rate increases to between 3 and 5 percent.

In reality, variable rate auto loans are never really a good idea. However, if you must choose one, choose one where you have some control over the interest rates. Make sure that the loan term is not too long. Select a term with payments that you can afford, but also one that will actually help you pay off the vehicle as soon as possible. After all, paying off your vehicle as soon as possible is always a good idea.