After the Bank of Canada slashed interest rates by 1.5 percent in March due to the pandemic arising around, which led to lower mortgage rates. But it has yet not let to a decrease in car loan interest rates. borrower’s job security is playing a major role in this decision as employment uncertainty has a greater impact on the risk involved with lending. Many companies are going out of business which results in many unemployment due to coronavirus outbreak.
Job security not only plays an important role when it comes to lower interest but also impacts the foremost process of approval of the loan. I think employment uncertainty will lead to rejection of loans even before interest rates could come into the picture.
Factors Affecting Interest Rates of A Car Loan
Job security is the factor playing a major role in the interest rates of car loans, as it simply helps you get a car loan at your favorable interest rates. But job security and lack of stable employment history couldn’t help because lenders consider these as major factors in terms of interest rates.
Type of vehicle
Type of vehicle whether old or now also determines the interest rate of car loans, as the older vehicle has higher interest rates than those vehicles which are new ones.
The money which you earn and the money which you owe as debt is known as the debt-income ratio. Companies are likely to increase interest rates if you have a poor debt-income ratio, it doesn’t matter how high income you earn if your debt is even higher than that as it seems as if you are prone to default on loan repayments.
The strength of the economy also plays a major role in deciding the interest rate of car loans as there are many investors available to finance when the economy is booming and would result in lower interest rates but vice versa when the economy is flattening.
If Interest Rates of Loan Dropped?
Even if interest rates of car loans dropped then also there won’t be many people seeking for the loan until COVID-19 gets eradicated because in current scenario people are more in need of essentials and not luxuries, it could be avoided for a while but once things get back to normal then there might be an increase of borrowers.
If Car Loan Interest Rates Are Reduced, Will it Lead To An Increase In Car Financing?
As earlier discussed car financing depends on investors who are available in the market which is led by a booming economy and the current economy is flattened henceforth lack of investors and car financers. Reduction in car loan interest alone cannot change the scenario when there are too many factors affecting the current scenario.