Getting a Car Loan – An Explanation of Automobile Financing Terms
It’s always best to educate yourself on loan terms before signing a loan contract or even searching for a car loan. This article explains some popular automobile financing terms so you know what you’re looking at when comparing car loans:
Interest Rate
This is the rate of interest you’ll be charged on the amount of money you borrow. Interest rates can be fixed or variable. Fixed interest rates are state at one amount for the life of the loan. Variable interest rates fluctuate depending on the prime rate. So, if you have an interest rate that is station at prime plus two points, and the prime rate is at 3%, then your interest rate will be 5%. If the prime rate goes up, so will your interest rate. If the prime rate goes down, so will your interest rate. Fixed rates do not change. They are constant through the life of your loan.
Pre-Payment Penalties
Pre-payment penalties are penalties that you are charged if you pay your loan balance off in a shorter time than originally negotiated. So, if you construct monthly payments greater than what you’re charged, or if you refinance your car loan, you will be charged a clear amount that was sure when you signed your contract.
Loan Term
This is the amount of time that your loan will last. For example, if you borrow $10,000 on a four-year loan term, you will have to pay that amount abet plus interest in four years. Most car loan terms are somewhere between two and five years.
Car Insurance Clause
Most lenders require that you maintain full-coverage car insurance on any car that is financed. This contrivance, if the car was totaled, you would receive the considerable amount in order to pay wait on the financing company. Because a car’s value lickety-split deteriorates, it’s advisable to net insurance that pays relieve the corpulent amount of your loan. Otherwise, your insurance company may objective pay abet the value of your car, which may not be enough to pay off your loan. You’ll then be stuck with a loan payment on a car you no longer have.