Understanding Car Loans
When it comes to purchasing a new or pre-owned vehicle, finding the automobile that’s the right fit for you is only half the battle.
At Eyes On Auto, we keenly grasp the difficulties many would-be car buyers encounter when attempting to receive financing for a new or used vehicle. On its surface, a loan and the numerous variables that constitute it can be off-putting and even stressful to auto shoppers.
Fortunately, we’re here to help.
Together, let’s simplify your understanding by taking a look at what car loans are and the primary factors that will affect the amount you pay each month for that slick new ride.
What Is a Car Loan, Exactly?
While some dealerships offer direct in-house financing, most of the time, you’re making loan payments to an outside lender.
Whenever you agree to a car loan, the lender actually buys the vehicle on your behalf and agrees to allow you to pay back the financed amount (sans down payment) over the course of many months.
What does the lender get out of all this? Simple! Interest. And speaking of that, let’s tackle the three primary components that constitute a car loan—the principal, term, and rates.
Principal is simply the total cost of the automobile you’re being financed for, including any add-ons you desire and any items the dealership tacks on. The latter may include a processing fee, dealer preparation charge, delivery cost, and more.
These fees will vary by dealership, so be sure to inquire on specifics.
Term refers to the length of time you have to pay off your car loan. Generally, this period will range from 36 to 72 months, although there can be wiggle room depending on how well you negotiate.
The interest rate is effectively your “penalty” that you must pay back for borrowing money from the lender to complete your automobile purchase. It’s the price you agree to for accepting their services.
The interest rate on your car loan will primarily be determined by two factors:
1. The cost and prestige of the vehicle selected.
2. The “risk” the lender judges they are accepting by extending you a loan. This risk is determined by your employment history, life status, citizenship and, of course, your credit rating. Learn more here.
Car loans are usually “simple interest” affairs as opposed to compound, meaning the amount of money paid out is determined strictly by the total owed at any given time (the principal). However, since these financial agreements are predicated upon amortization, you’ll pay greater interest at the beginning of your term than at its end.
Bear in mind that while a longer-term length makes your per-month payments smaller and likely easier to make, it also means you’ll cumulatively pay more interest across the life of your loan.
How Eyes On Auto Helps
Hey, we get it—you desperately need a vehicle, and getting that unpleasant feeling in the pit of your stomach when thinking about whether you’ll be approved or not can be overwhelming.
We’re here to flex our muscles on your behalf. Working with our diverse network of lenders and local dealerships, we can secure financing regardless of whether you have bad credit, no credit, are a student or new to the United States, etc.
Click here to apply for a car loan and save on EOA’s volume discounted pricing and reduced interest rates!