Important Factors That Impact Car Loans In Caledonia

Important Factors That Impact Car Loans In Caledonia

Posted on April 14, 2021

A car is a significant purchase. Likely the second most expensive purchase most of us will make. That means getting your math right and knowing exactly what you’re getting into is essential. That’s what our Caledonia auto loan team are covering. Today we are discussing the three factors that impact car loans in Caledonia, and how expensive they are.

Those factors are:

• Auto loan amount
• Loan term
• Interest rate

Auto loan amount

The amount you borrow will of course impact the cost of the auto loan. The more you want to borrow, the more you’ll pay each month. As cars are becoming steadily more expensive, those loan amounts are gradually increasing.

The loan amount can also impact the loan term and the interest rate so all three factors combine to build the loan cost.

Borrow more and you will often be offered a longer loan term to pay it off and/or a lower interest rate for that amount. The key here is to borrow as much as you need but check any thresholds you may be close to.

For example, you borrow $33,000 as an auto loan amount but can get a lower interest rate if you borrow $35,000. Do the maths to see how much that lower amount might save and consider borrowing the larger amount. You could always use the extra to make the first few payments!

Loan term

The loan term will help determine the cost of the loan. The term refers to how long the loan is for. It is measured in years but expressed in months, 3 years = 36 months, 4 years =48 and so on.

Borrow for a shorter term, your monthly payments will be higher. Borrow over a longer term and your payments will be lower.

However, longer term loans will often cost more in interest. You may be offered a lower rate for a longer term but you will be paying that lower rate for far longer.

That will be another test of your maths!

Interest rate

Auto loan interest is charged at a set fee per year, the APR. When you sign the loan, that APR is set and will not change.

Typically, the more you borrow, the lower the rate. The same for the loan term. The longer you borrow, the lower the rate. This doesn’t always work out this way but is typically how auto loans work.

The interest rate is also influenced by your credit score, the type of loan you’re applying for, your income, current level of debt and other factors.

If you pose a low risk to lenders, you’ll get a lower rate. If you’re considered a higher risk, you’ll pay more. Lenders use your credit score and credit report to assess risk. The higher your score and the ‘cleaner’ your credit report, the lower the risk you are perceived to be.

As you can see, each of these three factors that impact car loans are intertwined as well as having their own influence. It’s one of the reasons auto loans need a lot of thought and planning to get the best out of them!

When you’re ready for a car loan, get in touch with the Caledonia auto loan experts at Northway Ford for great deals on auto finance.

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