Buying a car isn’t cheap, and even the cheapest new or used vehicle comes with a hefty loan that requires payments for years after you drive off the lot. If you want to keep your costs down and reduce the total cost of the vehicle, it’s important to understand how car loan rates work. Car loan rates are the financial institution’s cost of lending you money to buy a vehicle, and they vary by lender and credit profile. The lower your credit score, the higher your rate will be.

The lender’s underwriting criteria is based on your overall credit profile, including your debt-to-income ratio and other information in your credit report. A low debt-to-income ratio is an indicator of your ability to pay back the loan, and it can help you qualify for a better rate. In addition to credit score, other factors like your employment status and income will affect the type of auto loan you can receive.

As you shop around for the best car loan rates, it’s a good idea to get preapproved with several lenders to see what offers you can expect to receive. Many lenders offer a soft credit check that doesn’t impact your score, so you can get an idea of the type of rates you might be able to secure before you go to the dealer.

Another factor that influences auto loan rates is the type of vehicle you’re purchasing. Some vehicles are more expensive to repair or maintain than others, and that can affect the rates you’ll be offered. In general, lenders tend to offer lower rates on new cars than used ones.

One way to make the most of low car loan rates is by putting down a larger down payment on your vehicle purchase. This will decrease the amount you need to borrow, which can decrease your interest rate and monthly payments. Lenders may also offer you lower rates if you use their own in-house financing or service to buy your vehicle.

The auto loan market is shifting, with credit unions gaining ground on banks and captive finance companies when it comes to new-car financing. Last year, the share of loans financed by credit unions for new vehicles rose to 23% from 21% of all financing.

It’s possible to find competitive rates, regardless of your credit history. By improving your credit score, increasing the size of your down payment, and comparing rates among multiple lenders, you’ll increase your chances of finding an auto loan that works for your budget. You can also avoid getting overcharged at the dealership by doing your research online and using an app that allows you to shop, compare prices, and get a trade-in value before visiting the dealership. It also helps to apply for preapproval with several lenders and check their rates before going to the dealership. This will help you avoid being stung with high interest rates at the start of your car loan term.