What Is an Auto Loan?
When you use an auto loan, you are essentially borrowing money from a bank, credit union, or auto finance company to purchase a vehicle. Instead of issuing the funds to you, the bank or finance institution pays the dealership for the vehicle. In turn, you agree to pay them back over a set number of years. At this point, your agreement is with the bank — not the dealership. To compensate the lender for loaning you the money to purchase a vehicle, you'll pay interest as well as any fees that accrue on the loan. It's important to understand that until you pay off the loan, the auto finance company still owns the vehicle and holds the note.
Important Auto Loan Terms You Should Know
Before we move forward in the discussion about auto loans, it's imperative you understand a few key terms.
- The term of the loan is also called duration. The term is the amount of time you agree to pay your loan off. You can usually choose from 36 months, 48 months, 60 months, 72 months, and even 84 months. While longer terms can lead to lower monthly payments, they also can lead to you paying more interest over the life of the loan.
- Annual percentage rate (APR) is an expression that explains how much you'll pay to borrow the money. The APR is essentially the interest rate given as a yearly percentage. The higher your APR, the more you'll pay for the loan.
- Down payment is the amount of money you put toward the cost of the vehicle before financing. Your down payment can be a trade-in vehicle, cash, or both. The higher your down payment, the lower the overall amount you'll need to finance, which can lead to a lower monthly payment.
- A monthly payment or monthly installment is the amount you agree to pay each month for the auto loan. Your monthly payment is based on your interest rate as well as the total amount of the vehicle with fees and taxes.
- The principal balance is the amount you borrow from the bank minus any penalties, fees, and other costs.
- The total cost of the vehicle is the complete amount you'll need to pay to satisfy the loan, including principal, interest, taxes, and everything else.
How Do Auto Loans Work at Lawrence Chevrolet?
Now that we have properly defined the auto loan and explained a few key terms, let's take a closer look at how this popular finance method works if you purchase a vehicle for $20,000. At the time of purchase, you'll be able to choose from different terms. If you choose a longer loan term like 72 months, it can result in a lower monthly payment. However, the longer-term most likely means you'll pay more in interest over the life of the loan. In some instances, choosing a longer-term can cause you to owe more than what you owe or be upside down.
Here is a simple calculation that explains the impact of your term on the monthly payment and total interest paid based on a 3.75% interest rate:
- If you choose a 36-month term on the $20,000 vehicle, your monthly payments will be around $588, and you'll pay a total of $1,177 in interest over the life of the loan.
- If you choose a longer 60-month term on the $20,000 vehicle, your monthly payments will drop considerably to $366. However, you'll pay significantly more in interest over the life of the loan at $1,965.
If you can afford to choose a shorter term, you may find that to be more beneficial. On the other hand, if you are on a tight budget, choosing a longer-term may empower you to get the vehicle of your choosing.
Applying for an Auto Loan
To receive an auto loan, you will need to complete and submit a
credit application at Lawrence Chevrolet. This application will offer the lender insight into your financial profile. Some of the most common information required on a credit application including:
- Your Social Security Number
- Monthly income
- Length of employment and employer information
- Current and previous addresses
- Existing debt
In most instances, the team at Lawrence Chevrolet can provide you with instant approval within a matter of moments.
Where Can I Find the Best Auto Loans?
If you're looking for the best auto loan solutions, the team at Lawrence Chevrolet can help. We have partnered with the leading banks and credit unions throughout the United States. We systematically tap into these relationships to provide our customers with flexible terms and low-interest rates. Best of all, we make the credit approval process as easy and hassle-free as possible. Simply complete our
online credit application, submit it, and one of our team members will contact you to discuss your next steps!
