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The Basics of Car Loans

Few people have the luxury of paying cash for a vehicle.

A car loan is one way for you to purchase a new or used vehicle. You borrow money from a lender and pay them back over time, usually with interest. The amount you borrow is called the loan principal or financed balance.

Lenders charge interest, this is how they make a profit. The interest rate is a percentage of the loan that you must pay back in addition to the loan principal. Interest rates are determined by your credit history. The higher the risk of you not paying causes a higher interest rate. Each bank is different on how they determine the risk involved and how the rate is based on that risk.

Most banks consider customers in two categories, Prime and Sub-Prime, some banks even [...]

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