Do you want to buy a car but currently you can’t pay for it in cash or with your savings? Car loans can help you get the car right away, provided that you have met all the requirements. A record high of 27.54 million car loans was made in 2016 and until today, many are still opting for this option to get their vehicle.
With car loans, you pay for the price of the vehicle plus the interest. For most people, the price of the interest is worth getting the car that they want today. Their need and want for such a vehicle outways the interest paid on top of the principal amount. Even people with bad credit can get the best rates. Let’s talk more about the car loan interest so you can decide whether you’d go for it or not.
Car Loan Simple Interest
Most of those who provide car loans make use of simple interest. This will depend on how much the principal is. One of the good things about simple interest is that it doesn’t compound. That is great news to borrowers because they can save more that way.
When simple interest is used, you can expect that you wouldn’t pay the same amount of interest throughout your loan. Most car loans are paid through amortization, which means that more interest is paid during the beginning of the loan.
Effect Of Length Of Car Loan On Interest
When it comes to the interest charges, there are a few factors that come to play. The main one is the interest rate. However, the length of the car loan would also affect how much interest is charged.
Long-term car loans will also mean more interest charges. Although it is more attractive to have the car loan for longer so you have to pay less for each month, the extra time would also mean that the interest rate is also higher. It is just spread out so you can pay lower monthly.
Reducing Interest Charges
When the interest charges have already been computed and the loan is already taken, you might want to find ways on reducing the interest charges. The good news is that it can be done by paying early or unscheduled payments.
When you do that, the loan balance decreases, which also means that the interest charged to you monthly decreases. That’s because the interest is computed by considering how much you still owe in your loan. Interest charges also lower down as your balance also lowers down.
Paying food extra every month is a good way to reduce the interest rates of your car loan. However, if you can’t do that, you may also try to refinance the car. With it you can choose something that has a lower interest rate.
Things To Consider Before You Apply For A Car Loan
One of the main things people consider when applying for a car loan is the interest charges. However, it is not the only thing you should think about when deciding whether to take out a car loan or not. Important factors such as the following should also be thought of:
Type Of Car
What type of car are you eyeing to purchase with a car loan? Is it a new one or a used car? Both types of cars have their own advantages and disadvantages and you have to decide which one to buy. Also, make sure that the lender supplies car loans for the type of car that you want to purchase. Take note that there are lenders who only provide loans to purchase new cars.
The loan terms could be different from one lender to another. Some may offer that’s payable in a year while others can extend up to seven years. The payments you need to make each month will also depend on your loan terms.
Availability Of Getting Additional Funds
Aside from borrowing money to purchase your vehicle, some lenders will also allow you to borrow more so you can have the car registered. You are still to pay for car insurance and registration before you can use the vehicle. Some lenders provide this for their clients while others do not. It is best to clarify with the lender before making the final decision.