When you decide to shop for an auto loan, you might find many choices and options with the available loans. The differences fall primarily with the terms of the loans you can choose. Every auto loan comes with terms, but the terms vary. Here is an explanation of what this means and the effects the terms have on a car loan.
The Terms to Consider
Before you can understand the effects the terms have on a car loan, you might want to learn a few things about what this means. The terms of an auto loan tell you the details about your loan. They include the number of payments you must make, the interest rate you pay, and the cost of the monthly payments. You will notice that every lender offers different terms if you shop around. To find the right car loan for your situation, budget, and needs, you can compare these terms.
How the Interest Rate Works
Car loan lenders determine interest ways in several ways. First, they base it on the car you want to purchase. Secondly, they consider your credit. Typically, lenders offer lower rates on newer cars and higher rates on older cars. Additionally, they offer lower interest rates to people with great credit but charge higher rates for people with poor credit.
The rate you pay affects how much you spend on your car loan. If you have a rate of 10%, you will pay around 10% interest on the loan balance throughout the year. If your rate is only 4%, you pay around 4% on the loan balance each year.
The Effects of the Loan Duration You Choose
The duration also affects your car loan. If you choose a longer duration, it spreads the balance over a longer period. As a result, you pay less each month for your car payments. If you choose a shorter duration, you have less time to repay the balance. The result of this is higher monthly car payments.
Some lenders offer lower interest rates on shorter durations, and you can ask your lender about this if you have questions. You can also ask them if a higher down payment might result in a lower rate.
If you get a car loan and decide it is not the right one for your situation, you could consider refinancing it. You can talk to a car loan lender, like Premier Financial Credit Union, to learn more about getting an auto loan or refinancing one.