So you’ve finally decided to get a new car, and maybe this is your first car and your parents are forcing you to go to a dealership and pick out something nice. Or maybe this isn’t your first car, but you are tired of looking online for used cars from potentially shady people that may be selling you a piece of junk that doesn’t run. Either way, this is your first time buying an expensive car from a dealership, and you don’t know anything about auto loans.
It’s a good thing you stumbled across this article, which will give you a basic run-down of how auto loans work.
Most auto loans are simple interest loans, or loans that earn a little bit of interest per month. That means that in addition to the principal, or the amount you borrowed to buy the car, some of your monthly payment is going to cover the interest of the car, which is the part where the bank earns money from you over time.
The company you buy the car from will make all of this very clear once they get you approved for the loan. They will sit with you to decide how much you want to put down on the car, which will show the leftover amount you are borrowing from the bank. They will then determine how much interest the bank is going to charge, which will be different depending on the bank as well as the people. Usually, once all of that is figured out, they will outline a plan, which takes the interest into account, and helps you to come up with a payment plan that includes paying the car off over a few years. This is all broken down for you to tell you how much your monthly payment is, and when you will pay it off completely.