1. APR: The Annual Percentage Rate, which stipulates the annual percentage rate of interest that the borrower has to pay on loans is a key consideration from the example mentioned above.
2. Monthly Payments: The total monthly payment comprising principal and interest amounts is calculated from APR, principal amount and loan term (otherwise known as the duration that the borrower has taken the loan out for).
3. Loan Term: Longer loan terms mean smaller monthly payments, but this is offset by the fact that the amount of interest paid is greater over the total period of the loan.
4. Down-Payment: While this may not be as big a consideration in these types of loans (particularly if there is no requirement for a down payment), a down-payment serves to reduce the monthly repayment amount if the borrower has the financial capacity to be able to do so upfront.
5. Total Principal Amount: The total principal amount borrowed depends on the market price that the vehicle is sold at, as well as applicable fees and taxes. The greater this cumulative amount, the higher the monthly payment will be.
6. Penalties and Other Fees: Going back to contract reading best practices, it is important to gain an understanding of these fees to avoid any outsized financial penalties.
7. Trade-in: Some dealerships will allow a trade-in vehicle, which can be “traded in” for a new one. The old vehicle’s value is appraised, and is subtracted from the market price of the new car. It could therefore work to the borrower’s benefit to obtain a loan after trading in his/her old vehicle.