Auto Loans 101Sep 17th, 2020
Want tips on how to get the lowest payments on your auto loan? There are three main factors that go into deciding what customers will pay on their auto loans. These factors include The Term, The Principal, and The Interest Rate.
The Term encompasses the overall time you’re allowed to make payments to repay the total loan on your vehicle. In Canada, Automotive Terms can range anywhere between 12 – 96 months. With this term in mind, it’s important to know that while the longer terms can decrease your monthly payments, this usually comes with higher interest rates. The best guideline for an affordable term is staying between 60-72 months as the maximum time for your term in order to avoid higher interest rates.
When it comes to the second factor, The Principal, this is calculated by the total amount you paid for the car you are financing. This price encompasses all fees, taxes, and add-ons you placed on your purchase. Therefore, the more you pay for your car, the higher The Principal. That’s why finding the best auto group and lending solution that doesn’t overcharge based on prime or non-prime credit is the best option for lower auto loans.
Third, are Interest Rates, which are calculated by the total interest rate the lender is charging for the loan. On the Bill of Sale, you can see what the Total Cost of Borrowing over the entire term will be. Interest rates can range anywhere from 0.00%-5.95% on new vehicles in Canada, and from 3.95%-29.95% for used vehicles. Though it may be surprising to some that used vehicles often have higher interest rates than new vehicles, this is due to the lower price of used vehicles overall. Since a used vehicle costs money to buy, refurbish, and store, the dealer usually needs to make back their money on some of that cost with a higher interest rate. If you have prime credit, a new vehicle could be the best option for you!
Knowing how these three factors contribute to the price of your auto loan, you can find the perfect dealership that suits your budget and needs. Based on your credit, you can find out which options are best for you with dealerships who prioritize options and services for all credit types.