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How does interest in a car loan work?

I’m considering getting my first car loan. I’ve never been very good with math or finances, so I don’t understand how interest rates work. How would interest in a car loan work?

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Will Baldwin · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
That’s a good question! The best way to describe interest is *an annualized percentage that equates to how much money you owe on top of the lump sum.
Generally, most car loans are simple interest loans. They’re on an amortization schedule, meaning the more you pay off, the less interest you’ll pay over time.
The other type of interest for car loans is precomputed. If your car loan is precomputed, the amount of interest you pay is calculated at the beginning of your loan term. Since the interest is built into your monthly payments, you typically won’t save any money by making early or extra payments.
To ensure you understand your car’s loan and finance agreement, make sure you ask any questions and review all your loan documents before signing. A
car loan
is a big decision, so you’ll want to be sure you fully understand everything before agreeing to it.
Once you find a car and get a car loan, you’ll also need car insurance. If you’d rather leave the hard work of gathering quotes to someone else, use
Jerry
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