Each and every lender will use a different formula for how they determine what interest rate you client can obtain on their proposed car purchase, so it is always advisable to discuss the specific scenario with us prior to quoting you client, AFS have access to a wide range of lenders and products to ensure your clients obtain the best overall deal based on their circumstances.
Interest rates are determined based on the following
– Borrower Profile
– type of asset being funded
– Age of the asset and Loan term
Borrower Profile
There are a lot of considerations taken into account with an applicant in regards to how a lender may determine their overall profile. They will look at the application and review how long they have been in employment (same industry) and residence, or how many different employers and residences you have had in a certain period of time. Business applicants are reviewed based on the number of years in business, for example, a business applicant who has been in business for more than 2 years will be considered more favorably than a business that has been operating for 6 months They will also look at the applicant / Directors net worth, which is their overall assets versus their liabilities, and property with equity, can be a big scorer when determining their interest rate. What also will be reviewed is your overall income versus expenses and how much surplus would be left after your proposed car loan repayment.Past checkable car loans as a reference will also assist in achieving a better interest rate, as an experienced borrower with good past history will be deemed less risky than a first time borrower, or a borrower that has had an average previous loan history. This is why it is always crucial to advise clients to conduct their loans perfectly,
Type of Asset being funded.
Of course the asset your client is proposing to purchase will have a big effect on what interest rate your client will achieve. A brand new car purchased through a dealership is a less risky lend, than for example a 9 year old car being purchased through a private seller. The amount they are borrowing against the vehicle will also come into account, as if they have a deposit or a trade in which reduces the borrow, this reduces the risk for the lender, than if they were to borrow the whole amount, or borrow other costs such as on road costs or finance shortfall from the previous finance of your trade in.What it basically comes down to is how much risk the lender perceives to be taking on, with both the asset and the applicant. Not all lenders work on a “rate for risk” environment, but their lending criteria will determine as to whether they would be approved for what interest rates they have available.The interest rates on different assets are determined based on the risk to the lender
A motor car is deemed less of a risk as against a forklift or a photocopier
Age of the asset and Loan terms
The age of the asset has a direct impact on the rate, for example the interest rate on a used motor vehicle more than 3 years old can be about 0.50% higher than the rate on a new motor vehicle, most lenders tend to load the rate by 0.50% for different age categories for example; 0-3 yrs, 3-5 yrs, 5-7yrs etc..The loan term also affects the rate , most standard loan terms are 3, 4, and 5 yrs , when a client request for a loan term of say 2 yrs , the rate could jump up substantially
What it basically comes down to is how much risk the lender perceives to be taking on, with both the vehicle and the applicant. Not all lenders work on a “rate for risk” environment, but their lending criteria will determine as to whether your client would have access to certain product or facility.
Asset Finance Systems can guide you through this maze to ensure your clients have access to the best rates based on their individual circumstances.
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