WEBVTT

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So, you've found the car, and you are looking to apply for financing.

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When you finance a vehicle, you borrow money from a lender.

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The lender provides the funds up front, and in return, you agree to make regular payments over a set period of time.

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You choose the loan term, which impacts your monthly payments.

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A shorter term means higher payments, but less total interest over the life of the loan.

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A longer term means lower payments, but more total interest paid in the end.

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Once you sign, your loan begins.

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And so does simple interest.

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Simple interest is calculated by the principal, multiplied by the interest rate by the length of the loan.

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For example, if you had an auto loan of $30,000 with a 7.5% interest rate,

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over four years, your estimated monthly payment would be about $518.

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With an overall simple interest of about $7,346, your credit score influences the type of loan you receive.

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Your credit score, which is a function of your financial history, directly impacts your interest rate.

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As you make payments on time, you are building good credit.

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This would help you to qualify for lower interest rates.

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Making late payments will hurt your credit score, leaving you with higher interest rates in the future.

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Each loan varies by the interest rate, which affects the overall monthly payment.

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A higher credit score results in a lower interest rate, which means you pay less money over time.

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Here is where it gets a little tricky.

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When you begin making payments, you are not just paying back what is owed.

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Principal.

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You're also paying interest.

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In the beginning, a larger portion goes to the interest, while only a smaller amount reduces the principal.

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As full payments are made on time, more goes towards the principal with each payment.

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Interest is calculated on the outstanding principal.

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So as the principal decreases, so does the daily interest charge.

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Remember, paying late will result in added interest, meaning less of the next payment will go towards principal,

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and you could be paying more than you originally planned, best not to let the interest build up.

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If you are falling behind on payments, contact your account servicing representative.

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They can help by making your payments before the due date.

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You reduce the amount of interest you pay.

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Even better, if you pay extra, the additional money will go directly toward the principal balance.

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Now that you understand simple interest loans, you're ready to drive smart, pay smarter, and save even more.

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Arivo.

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Helping good people build better credit.