Everyone needs transportation to get around, but cars and trucks can be expensive. Realistically speaking, you may need to take out an auto loan to cover the cost of your car up front. If you don’t know what to expect when getting an auto loan, it can be a stressful experience. Learn what you can before you need to get a loan and you will be prepared walking into that bank or dealership. Check out the anatomy of a car loan below and get the information you need to get your new set of wheels!
It is often necessary to put a certain amount of money down on a car in order to be approved for an auto loan. An average down payment is about 20% of the vehicle’s worth, but 10% down payments are also common. Down payments are important because the more money you put down now, the less you have to pay off later.
The interest rate is the money that the lender makes off the loan. They give you the money to buy the car, but you have to pay them back a little bit extra. Your specific interest rate will be determined by your credit score. People with a higher credit score can get a lower interest rate, and the sooner you pay off the loan, the less interest you will have to pay.
Term of Loan
This is a very important factor to consider when taking out a loan. You want to make sure you have a good loan term because you will need to have an affordable payment every month. The longer your loan term, the less your loan payments will be a month, but the longer your loan term the more interest you will have to pay. A typical loan term is anywhere from 4-7 years, but you will want to pick a term that fits with your financial situation.
This isn’t a necessary part of an auto loan, but if you do have a vehicle to trade-in, it could help you save some money on that new vehicle. The dealership can deduct the value of your trade-in from the price of your new vehicle, so you can get rid of your old car and get some money for it.