Car loans are different from personal loans because when you seek car finance Brisbane for buying a car, the car itself becomes collateral for the loan. After choosing the car, buyers look for the best financing options and reach out for lenders who are willing to provide quick funds. Just as important it is to choose the right car; it is equally important to choose the right lender who not only offers the best rates but also matches the terms according to your needs by balancing the loan with your budget.

Car loans are very popular because only a few buyers can afford to pay cash for the full price of a car, whether new or used car. Car loan rids you of all worries about financing, and the process is easy, convenient and fast especially if you involve a finance broker that can offer a wholesale rate of interest which is definitely better than the best that you could get by contacting lenders directly.

Although you can enjoy the car right from the first day, you become its owner only after you pay back the loan because until then the lender holds the title of the vehicle. In this article, we will discuss the building blocks of car loans.

Loan cost or monthly payment

The monthly payment that you make comprises of the loan cost made up of the principal amount and interest. The principal amount is the balance loan amount which will be lower than the cost of the vehicle because rarely there is 100% funding by lenders and car buyers must make some down payment.  The tenure of the loan determines how much monthly principal payment you must make.

Interest rate

The interest rate is also known as Annual Percentage Rate (APR) is the cost of borrowing money which includes the costs incurred by lenders, risk coverage and profit margin of lenders. After being very low for many years, the auto loan interest is now near normal. A number of factors influence the interest rate, some of which are within your control and most being driven by the forces of the financial market. The duration of the loan, the type of vehicle you are buying and your personal credit history are some factors that affect the interest rate. For the same vehicle purchase, different lenders can offer different interest rates.

Floating and Fixed interest rates

The interest rate can either be fixed or variable. Fixed interest rate entails paying the same interest throughout the loan period while variable interest means that the interest can change periodically, either increase or decrease, depending on the market and economic conditions. Fixed interest rate is better for planning repayment by setting aside a fixed sum of money.

Loan term       

36 months to 48 months used to be the normal loan duration that has now gone up to 60 to 72 months as cars have become much more expensive. Longer payment terms attract higher interest as the duration of risk is also longer.

As you keep making monthly payments, the payment amount reduces slightly as the loan balance declines.