Auto Loans Weblog

Interest rates are calculated based on the likelihood you will be able to pay your loan off on time. Strange events can happen, but typically the best way for banks to guarantee they will get their money back are

• to only loan to qualified people, and
• look at their recent history to see if they qualify

Your FICO credit score and dirivative measurements are designed to measure the risk of default, by taking into account various factors. Although the exact formula for calculating the FICO score is a closely guarded secret, Fair Isaac has disclosed the following components and the approximate weighted contribution of each:

• 35% punctuality of payment in the past
• 30% capacity used, i.e., ratio of current revolving debt (e.g. credit card balances) to total available revolving credit (e.g. credit limits)
• 15% length of credit history
• 10% types of credit used (installment, revolving, consumer finance)
• 10% recent search for credit and/or amount of credit obtained recently

If you have a low FICO score (less than 600) you may not be able to get a loan or you may be charged a much higher than average interest rate. The two best ways to fight that off are

• improve your credit (which can take a great deal of time), or
• get a co signer who has a great credit rating

It takes a good amount of trust for a co signer to sign off on your lease, and they are taking a huge risk when they sign on for you. If you default on the payment they are stuck paying for it.