How Do Car Loans Work?

Financing a vehicle can be tricky, especially if it’s your first time or it’s been a while. You may have several questions about the process and exactly how it works. Whether you are getting a car loan near Columbus, Ohio, or anywhere else, if you aren’t well acquainted with the car buying process, one of your biggest questions is probably, “How do car loans work?”.

Fortunately, we at Toyota Direct, along with our knowledgeable Toyota financing team, are here to help you understand the car loan process. To do this, we have compiled a list below of five highlights about car loans.

1. What Is A Car Loan?

Before you visit our Toyota dealership near Columbus, Ohio, or any dealership near you, it is wise to understand exactly what a car loan is. Car loans, such as the ones offered by Toyota financing, are a way for car buyers to borrow money from a lender to purchase a vehicle. The buyer then has to pay back this money over a set period of time. 

2. Key Terms

Whether you need a car loan near Columbus, Ohio, or anywhere else, you should first acquaint yourself with a few key terms. Take a look at the list below for these important terms:

• Annual Percentage Rate (APR): Interest rate of an auto loan
• Down Payment: Typically, a payment equal to 20% of a car’s value
• Loan Term: Set amount of time to pay off a loan
• Monthly Payment: Minimum amount to be paid each month
• Principal: Total amount borrowed minus interest and fees 
• Total Cost: Total amount of the loan

3. Loan Terms And Interest

Suppose you find the perfect Toyota SUV model for you at Toyota Direct. Once the time comes to discuss financing for this SUV, you will go over the specifics of your Toyota financing auto loan, which includes the loan term and interest rate. The loan term, as mentioned above, is the amount of time you have to pay off a loan. The term also affects the interest; hence, a shorter term means lower interest and vice versa. With this being said, you should choose the loan term that you are most comfortable with.

4. Credit Tiers

If you are using a car loan near Columbus, Ohio, or anywhere else, the terms and interest of your loan will typically be determined by your credit. Credit tiers based on credit scores are used to determine every auto buyer’s eligibility. The better the credit score you have, the better your eligibility and interest rates will be. Below, you can see each credit tier along with the scores needed for each and the average interest rates according to Experian Information Solutions:

• Superprime: 781-850                    3.61%
• Prime: 661-780                                5.38%
• Nonprime: 601-660                         9.8%
• Subprime: 501-600                          15.96%
• Deeper Subprime: 300-500          19.87%

5. Where To Get A Car Loan

Once you’ve determined which credit tier you fall into, the next thing you are probably wondering is where to get a car loan near you. Luckily, it’s fairly simple, and there are several different ways to finance a vehicle. The first way you can get a car loan is through direct lending, which is financing through any financial institution, such as a bank or credit union. Aside from direct lending, another way to finance is through dealership financing. Dealership financing is much more streamlined than direct lending, as it allows you to handle all financing in-house at a dealership.

In conclusion, we at Toyota Direct hope that this list helps you to better understand car loans and how they function. If you want to save money, don’t hesitate to contact Toyota Direct to take advantage of our amazing Toyota finance deals or discuss any questions you may have. 

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