How do car loans work?..meaning how would i got about doing so? and whats the time frame to pay for the loan?
Car loans, just like any loan is a promise to pay back money (with interest) that you borrow from a lender for a specific purpose. A typical car loan will run either 3, 4 or 5 years. Under special circumstances they can go longer. Equal payments are due on a specified date each month until the loan is paid off. Interest is charged to the borrower based on their credit worthiness. In order to qualify for a loan you need to find a bank or lending institution and apply (fill out an application). The lender will process the application and either approve or deny your application. Once approved they determine how much money they can lend you, how long they are willing to lend it and what interest rate they will charge you. The majority of Car Dealers can act as an agent for a lender, but rarely is the Dealership the actual lender, all they are doing is processing the applications as a service to their customers.
In extremely simple terms, when you find the car you want, you apply to the bank (or lending institution) for a loan. If approved, the bank pays the owner (or car dealer) for the car. The owner (or car dealer) is no longer in the picture. Any issues are now between you and the bank. You now owe the bank for the car whether it is a running car or piece of junk unless the previous owner offered a warranty. Terms are for 3 – 7 years depending upon the age of the car. New cars can be longer, used cars are shorter.
Generally speaking the loan is actually based on your credit rating and has nothing to do with the car except that they hold the title as collateral until it is paid off. The rates and the timeframe are negotiable; depending mostly on your credit rating. If you’re going to have to finance a vehicle you are best off to finance a used one so you don’t have the depreciation of a new car which would more quickly force you into the situation of a owing more on the car than it is worth if you sell it, commonly referred to as being “upside down in the vehicle.
