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Auto Loan Terms – Interest Rate And Loan Term

When it comes to auto loans, there are no terms more important than the interest and loan term. These hold significant importance for a borrower as these two numbers can drastically differ the amount that he/she is going to get and the amount that he/she is going to pay back. The following lines provide some basic information regarding these terms.

Interest Rate: it is an obvious fact that no individual would provide their money to someone else for free. One can ask family members or friends for money without any interest but the amount of money required to buy a new car can hardly be arranged by a family member. However, there are lenders who are ready to provide the finances and help people get their desired automobile. But, they also charge some interest on the loan which they earn because of their trust and risk. Now, the general rate charged varies on the applicant. If the applicant has a poor record of payments then the interest charged is more because of the high risk involved with the applicant. If the record is good, then the risk is low and the interest is low.

Loan term: this defines the amount of time that the lender gives to the applicant to pay back the loan amount. The amount plus the interest is divided into the number of months constituting the term of the loan which becomes the monthly installment of the loan. Hence, a low loan term means that the applicant has a higher monthly installment whereas he/she also has the benefit that the title of the car would be transferred that much sooner. However, a long loan term means that the applicant gets to enjoy low monthly installments buy he/she also has to endure driving someone else’s car for the rest of the loan term.

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