Applying for a Car Loan

Whether you are buying a new car or a used car, cars are expensive, so many of us turn to car financing. While car financing is a very common practice in Sweden, it is important that you understand the various terms associated with applying for a car loan.

Credit Rating

A credit rating is a tool used by creditors to determine your reliability as a loaner. Your credit rating is calculated based on your credit history, which is accumulated over your lifetime based on all of your past loans such as: mobile phone or internet plans credit cards, personal loans, mortgages or interest-free store loans. You will have a higher credit rating if you have had fewer loans and have paid all loans back, and a lower credit rating if the opposite is true. The higher your credit rating, the less interest you will pay for a car loan.

Loan Term

A loan’s term refers to the duration of the loan. Most of the time the duration of the loan is easy to identify, for example, a 4 year fixed rate loan has a term of 4 years. Car loans in Sweden are most often 5 or 6 year terms. Car loan terms do vary, however, as the term can be as long or as short as the creditor and borrower agree on. The loan is usually paid off in monthly payments, which are calculated so that you’ll pay off the loan entirely over the by towards the end of the loan’s term. So as you can see there are different types of auto loans available and a research should be done before applying for any loan. There are numerous financial portals online dealing with auto loans, such as Billån 24, where you can compare different loans to find the best one for your situation.

Simple Interest Loans

Simple interest loans are calculated by multiplying the initial balance by the interest rate and by the length or term of the loan. This figure is then divided by the number of months that interest has to be paid in. This is the most common form of loan offered for car financing.

Annual Percentage Rate (APR)

It is the charge of finance on your car, expressed as an annual rate rather than a monthly rate. APR can be expressed in two ways: nominal APR, which is your simple-interest rate for a year and effective APR, which is your fee with added compound interest rate, calculated for an entire year. When buying a car, the lower the APR the better.

Upside-Down Loan

An upside-down loan is a loan that requires you to pay on your car than it is actually worth. Due to the fact that car loans are generally paid in monthly installments, the dealership has the opportunity to unknowingly increase the price so you end up paying more than you should be. This is a type of loan that you should avoid.

If you are considering car financing, it is essential that you familiarize yourself with car loan terminology. If you are considering applying for a car loan and require assistance with understanding the process, contact the auto finance specialists.