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How Do Car Loans Work?

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How Do Car Loans Work? - PowerPoint PPT Presentation

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Loans can be an intimidating thing when you have never dealt with them before. However, they are also very useful in helping you to get things that you need when you do not have the money to pay for them upfront. 
Car Loans

Car loans help you to pay for a vehicle through regularly scheduled payments over a given period of time. In addition to the agreed-upon price of the car, you also pay interest, the amount of which is determined largely by your credit score. You may also have to pay extra for penalties you incur, which is why it is important to understand your loan fully before agreeing to it.

Interest Rates

Interest rates are an extra amount of money that you pay based on how much you still owe on the vehicle. The rate is usually determined by your credit score. If your credit score is low, you may qualify for a bad credit auto loan, which may help you to obtain an affordable rate. These types of loans may look at your monthly income and assets. As long as you make a certain amount of money each month, you may qualify for such a loan.


Penalties can occur if you violate certain parts of your loan contract. For example, if you are late on a payment, you may need to pay an extra amount. If you are continuously late, you could face other penalties such as an increased interest rate. Some loans may even penalize you if you pay it off early. Other loans may actually reward you if you make good progress on your payments. Be sure to ask any questions that you may have about penalties or rewards before you sign your loan contract.

Car loans work by giving you a certain amount of money to borrow in order to purchase your car. Your responsibility after that is to make your monthly payments plus interest as described in your contract. When you need a little help getting the money for the vehicle you want, a good car loan through a reputable lender can be a great thing.