When you’re buying a car, there are two steps: Find the one you like, then figure out how to pay for it.
Many Americans put off the second step until the last minute, but there’s hidden value in being proactive with a car loan. You can save thousands of dollars if you have a financing offer in hand before you head to the dealer.
As U.S. News recently explained, there are two lending terms you definitely need to know:
Car Loan Interest
The cost of borrowing money is called interest. It pays the lender’s administrative overhead, their marketing, and the costs incurred by borrowers who fail to make timely payments, and it provides them with a profit. An interest rate reflects the percentage of the financed amount that you’ll need to pay back to the lender in addition to the loan principal. Interest rates are presented by their annual percentage rate so that you can easily compare one financing offer to another.
Car Loan Term
The car loan term is simply the amount of time that you have to pay the money you borrowed back to the lender. Most loan lengths are expressed in months, but you can usually choose to pay them back monthly, weekly, twice per month, or every two weeks. If you’re paying manually, most of the time you’ll have a single monthly payment. If you have automatic payments, you’ll likely have more options.