Understanding car loans doesn’t have to be overwhelming or complicated. The process of car loan payments is calculated based on three main factors to determine how much your payments will be. The first factor is the net cost of the vehicle, this includes fees that the lender or dealership has for the car loan, along with options for add-ons. Typically, when you get a car loan, part of the payments go to the lender rather than the dealership. That’s why for customers with sub-prime credit, also known as “bad” credit, in order to get an auto loan, dealerships will offer what is known as “in-house financing.”

The second factor is the amount of time that payments will be made for. Time is divided into a term that usually ranges between 36 to 72 months which can differ based on the customer’s needs, whether they need less or more time to pay off their loan.

Last but not least, the third factor is interest rates. Interest rates are calculated by the percentage that the lender is charging you to borrow money. These Interest rates can differ depending on if the lender perceives any risk on the lending loan for the vehicle.

Knowing what factors contribute to the payments on your car loan can help you go into your car buying experience with the transparency and knowledge you need to differentiate how you can get the lowest payments, regardless of if you have “good” or “bad” credit!