A car loan allows you to finance a vehicle by borrowing money from a lender and repaying it in fixed monthly instalments, typically over 24 to 72 months. The lender charges interest on the loan, which is determined by factors like your credit score, loan term, and down payment.
Here’s how car loans work:
Loan Amount: The total amount you borrow to purchase the vehicle.
Interest Rate: The percentage charged by the lender for borrowing the money, influenced by your credit score and financial history.
Loan Term: The length of time (e.g., 36, 48, or 60 months) over which you repay the loan. Longer terms usually mean lower monthly payments but higher total interest costs.
Down Payment: An upfront payment that reduces the loan amount and can help lower monthly payments.
Monthly Payments: Fixed payments covering the loan principal and interest until the loan is paid off.
Factors That Affect Your Car Loan
Credit Score: A higher score can qualify you for lower interest rates, reducing overall loan costs.
Loan Term: Shorter terms typically have higher monthly payments but save on interest over time.
Lender Choice: Banks, credit unions, and online lenders offer different rates and terms, so it is important to compare offers.
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