Getting an auto loan can be confusing, especially if you’re not sure what exactly you’re paying for. That’s why we wanted to take some time to walk through a few different types of auto loans and how the length of the loan affects how much money you’ll pay in the long run.
For starters, when you take out a car loan, much like other loans, the lender you’re borrowing from is letting you use their money. In return, you pay interest on the loan over time. That’s where the length of the loan and the interest rate come in. Those amounts will affect how much interest you’ll pay before the end of the loan term.
Which auto loan is right for you?
Each month, you’ll be able to see a breakdown of your car loan that shows the principal and the interest. The principal reflects the amount you originally agreed to pay when you purchased the vehicle. The interest amount is what you’re paying the lender for allowing you to borrow the money.
Your interest rate can depend on multiple factors – namely, your credit score. In many cases, the lower the credit score you have, the higher your interest rate will be and the more you’ll pay in interest over time. The higher your credit score, the lower your interest rate and the less you’ll have to pay in interest over time. If you’d like to get pre-approved for financing and find out what interest rate you qualify for, fill out our finance application.
Many car buyers choose to get the shortest loan term they are able to afford, which allows them to pay interest over less time. This obviously depends on your specific budget as well as the cost of the vehicle you’re interested in. If you have any questions or are interested in learning more, contact our team at Kyle Chapman Motors.