What is an Interest Rate and How Does it Impact a Car Loan?

If you are like many of our customers, you are going to be taking out a car loan in order to afford your new or used car. When you take out a car loan, you will need to pay an interest rate on top of that car loan. The interest rate can be very complicated for many of our customers to understand – especially for those customers that are just taking out a loan for the first time. Here’s some more information about interest rates that may help to shed some light on a rather complicated car loan component.

They are Normal

Whenever you take out a loan of any type, it is highly likely that you will have to pay interest on that loan. Interest is the amount of money that you give to the lender in exchange for the car loan. It may help to think about interest as the lender’s “interest” in the arrangement. While we all may wish that lenders would lend us money out of the good of their own hearts, it’s not practical for any lender – even family members – to lend money without charging something for the arrangement. Interest is generally very small compared to the amount of the entire car loan.

Interest rates Vary

It’s rare for two people to get the same interest rate for the same amount of money – even on the same day and with very similar circumstances. Interest rates vary a great deal depending on a wide variety of factors. Those factors include the general economic conditions, a person’s credit history and credit score, specials that are going on at the dealership, the loan amount, the duration of the loan, and more. Therefore, you can expect for your interest rate to be different than someone else’s.

Interest is Based on the Entire Loan Amount

Interest is a percentage of the entire loan. You can often either get a fixed interest rate or a variable interest rate. It’s wise to have one of our lenders explain how both of these loan options may impact you and your loan before you decide which loan options to choose. You’ll repay the interest as you repay the principal loan amount each month and may not even be aware of the interest repayment (again – it’s generally rather small compared to the loan amount).

We’re happy to discuss interest with you. Contact The Approval Centre today at www.theapprovalcentre.ca for more information about interest and car loans and bad credit car loans.