When purchasing a car, securing a car loan in London, Ontario, is a necessary step for most Canadians. Financing allows you to pay for the car over a period through regular monthly or bi-weekly payments, maintaining consistency over a predetermined period. To make the understanding of the process of borrowing money and calculating these payments simpler, we have broken down the key terms involved. You can also click here to calculate your auto loan swiftly.

Understanding Car Loans: The Basics

Three main components determine car loan payments:

1. The Principal: Principal represents the total amount you need to borrow to cover the cost of the car you’re purchasing. This includes the agreed-upon price of the vehicle, additional add-ons, extra fees, sales tax, etc. In most provinces, you can include the provincial sales tax in your car loan, eliminating the need for a separate upfront payment. When you’re taking a car loan in London Ontario, the taxes can be included in the loan as well.

   You can decrease the principal by providing a down payment. A down payment reduces the amount you need to borrow and lowers the total interest cost as well. The more upfront money you put down, smaller the auto financing loan is and, subsequently, lower the interest expense.

   If you have a vehicle to trade in, its value can serve as a down payment, even if the loan on that vehicle is not fully paid off. For example, if your current vehicle is worth $6,000 and you still owe $4,000, you have $2,000 in equity that can be applied towards your new car purchase.

2. Interest: Interest is the fee that the lender charges for offering you the loan. It is typically expressed as an annual percentage rate (APR), calculated as a percentage of the principal. Car loan interest rates in London Ontario vary and are determined by factors such as the Bank of Canada's key interest rate and your personal credit score and history, etc.

3. Secured Loan: Auto financing loans are considered secured loans; meaning the vehicle's value acts as collateral, assuring the lender. This makes obtaining a car loan at a lower interest rate easier than an unsecured personal loan for the same amount.

4. The Relationship between your Credit Score and Interest Rate: Your credit score is a three-digit number that reflects your debt levels, history of timely debt repayments, and other factors.

   Financial institutions use your credit score to assess the risk of lending money to you. A high credit score indicates a strong track record of loan repayments. Customers with excellent credit scores generally qualify for the lower interest rates on the market.

5. The Term (Length of Time): The car loan term refers to the duration you will make monthly or bi-weekly repayments to clear your loan. Car loans in London, Ontario, typically range from 36 months (3 years) to 72 months (6 years), but shorter and longer terms are also available. Opting for a longer loan term can lower your monthly (or bi-weekly) car payment, as it spreads out the payments over a longer period. This means each individual payment is smaller. However, a longer term also means paying interest for an extended period.

Final word:
Whether you've already found your ideal car or you're preparing to budget for a potential purchase, using a Car Loan Calculator provides quick insights into the available interest rates and your estimated monthly (or bi-weekly) payment. It helps you make informed financial decisions and easily plan your auto financing loan.

AUTO APPROVERS is a reliable auto loan provider in London, Ontario. We offer well-optimized loans tailored to your affordability and convenience. Contact us today to fulfill your car ownership dreams!