Getting an auto loan means you allow a lender to purchase a vehicle on your behalf and agree to pay the lender back over time with interest. Car loan interest is the cost you pay for using the lender’s money. In most cases, car loans use simple interest instead of compound interest. Simple interest is calculated on the amount you took from the lender, known as the principal. On the other hand, with compound interest, interest is added to the interest. For this reason, simple interest car loans are more affordable than compound interest car loans. With a car loan that uses simple interest, each payment goes towards your interest for that month and the rest goes towards your principal. That way your interest will be paid every month, so it will not accrue.
To determine simple interest, you multiply the daily interest rate by the principal by the number of days that pass between payments. That is why you should always try to make your car loan payments on time. It is even better if you make payments before the due date each month. If you do so every month, your loan will decrease faster allowing you to settle your loan sooner than originally estimated. Paying your loan late every month will not only cause you to take a longer time to clear your loan, but it will also cause you to pay more for the vehicle over time as well.
How to get a good deal on your car loan interest
There is a world of difference between 4% and 6% interest rate for the same vehicle. Because your car loan interest will dramatically affect how much you pay for your vehicle you must aim to get the best possible interest rate when shopping for a car loan. Here are 3 ways you can get a good deal:
1. Improve your credit
Just about anyone can get a car loan but if you have bad credit, you will find that the interest rates on an auto loan will be higher than if you had good credit. Improving your credit score is a great way to ensure you get a good deal. And you can improve your credit score in just a few months.
2. Put some money down
A larger down payment means you will need to take less from the lender. Many lenders will give you better interest rates with a larger down payment because you are less likely to default on your loan as you have more to lose.
3. Compare rates
Whether you’re buying a new or used vehicle, compare rates before deciding on an auto loan. That way you will know when you have found a good deal.
Do you need car financing?
While the best option for buying a car is cash in hand, the fact is that many people cannot afford to do so. If you need car financing, Credit Now can help you in the same way we have helped thousands of other drivers. We have low interest rates and offer hands-on experience and dedicated solutions and options to suit your needs. Even if you have bad credit or no credit at all, we will not turn you away as we specialize in bad credit auto loans and loans for those with no credit history as well. So, give us a call today to discuss your options.