Interest on vehicle financing | OK Carz

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How do interest rates work when you get a car loan? 

When you’re looking for a new vehicle, there are plenty of things to consider before you make your purchase. One of the most important aspects to think about is how you’re going to buy your vehicle. Even with a used vehicle, most drivers won’t be able to pay the full price up front. Luckily, there are other options for payment, like taking out a car loan.  

With a loan, you’ll have monthly payments to make, which will be paid back over the course of anywhere between three and six years. When you take out a car loan, you’ll be making two payments, one on the principal loan, and another on the interest. Interest accrues while you’re working toward paying off the principal and is essentially a payment to the lender for letting you borrow the money.  

When you get a loan, the lender will set your interest rate, which is a percentage that you pay on your principal loan. In many auto loan situations, you’ll be paying simple interest instead of compound interest. Compound interest means that you’ll be accumulating interest on the principal loan and on the interest that has already accrued. Simple interest only accumulates on the principal loan, and you end up paying less in the long term.  

[Related: How does car financing work?]

Two People signing paperwork at a car dealership with a salespersonShould you get a car loan? 

For most drivers, a car loan is the only way they can get a vehicle, and while there are benefits to taking out a loan, there are also risks. Before you buy a car, you should weigh the risks versus the rewards and make sure that you’re financially ready to devote a chunk of your income to a car payment every month. 

If you’re looking for a dealership that is able to help you find a used vehicle that fits all your needs, visit one of the five OkCarz locations in Florida. No matter what your credit situation is, OkCarz can find a financing option that is the right fit for you. In some cases, after a year, drivers are able to rebuild their credit and trade into a new Toyota vehicle. To get more information on financing at OkCarz, apply for pre-approval online 

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