Understand Your Credit Part 4: Terms and Conditions!?!?

Amortization, term, rate and more: The ins and outs of your car loan

When you take out financing for anything one of the questions you need to ask is: “What is the AMORTIZATION of the loan?”

Amortization refers to the repayment of loan principal over time or the life of the loan. Loans are often amortized for 5, 6, 7 or 8 years for vehicles. Mortgages often have amortizations of 20 or 25 years some have previously even had 30.

The rate of interest you pay does not always have the same life time as your loan. This is known as your term.

The term of most automotive loans generally equals that of the amortization. So, if your loan is amortized over 60 months (5 years) your term is usually 60 months also. In finance we refer to this as 60/60.

As a promotional tool, many dealers will offer you a 60-month amortization but with a super low rate for a 12-month term – 12/60. At the end of that 12 months the loan jumps to a different rate, often significantly higher than the special rate. It’s important that you know what these conditions of your financing are.

Balloon loans – A balloon loan is a type of loan that does not fully amortize (complete to $0 owing) over its term. When the term is up you have choices: Pay out the balance (balloon payment); renegotiate the rate, where your amortization stays the same but you get a new rate for the term remaining on the loan; or renegotiate the whole thing, where you get a new rate, term and amortization. These options have their own benefits but only apply to certain instances. Most are only applicable to benefit business or commercial purchases.

All of the previously mentioned financing methods have you owning the vehicle.

Now if you are thinking that a balloon loan and a lease sound similar you’re right in that there are shorter terms and possibly lower payments. The challenge with leases is that there are a lot more conditions and terms you need to be aware of.

Next week: Leases

As the only remaining locally owned and family run dealership in Port Hardy, we at E.J. Klassen Motorcade want to help our community to continue to grow and improve. We want to help you fortify your credit against future dilemmas.

Remember, this is your credit, your money and your future. There are no silly questions. Read contracts, read pamphlets. Ask questions, ask for clarification if you do not understand something. Credit is potentially a long-term commitment; knowing what you are signing up for is important.

Feel free to come by anytime and we would be happy to look at your situation and see what we can do.

Comments are closed

Just Posted

Coroner’s inquest into fatal police shooting in Port Hardy begins in Campbell River

James Reginald Butters, 24, killed in 2015 after RCMP responded to call of male uttering threats

Forest fire 1.5 km from Sara Lake listed as out of control

While the fire is classified as out of control, they expect it to be under control imminently.

Port Hardy casting call

This is a paid gig $400 per person for the day.

62.5 pounder caught off north of Port Hardy

“It was a team effort to land this 62.5 lb fish”

20th annual OrcaFest takes over Port McNeill

Check out the North Island Gazette’s OrcaFest photo gallery!

VIDEO: Facebook rolls out tool to block off-Facebook data gathering

CEO Mark Zuckerberg announced the “clear history” feature more than a year ago

New ‘Matrix’ film set with Keanu Reeves and Lana Wachowski

Fourth installment to feature Reeves as Neo and Carrie-Anne Moss as Trinity

Catholic church buys $7.5M equestrian facility in B.C., plans ‘agri-retreat’ centre

Church hopes to grow crops, host students and others on Bradner property

New regulations require training for B.C. addiction recovery homes

Inspections, standards replace ‘wild west,’ Judy Darcy says

Pembina buying Kinder Morgan Canada and U.S. portion of Cochin pipeline

The deal also includes an Edmonton storage and terminal business and Vancouver Wharves

Trans Mountain gives contractors 30 days to get workers, supplies ready for pipeline

Crown corporation believes the expansion project could be in service by mid-2022

66% of B.C. residents want opt-out system for organ donation: poll

Support was lowest in Ontario and the Atlantic provinces

Vancouver Island rainbow crosswalk covered in mysterious black substance

Black substance spilled intentionally near Qualicum Beach school and difficult to remove

RCMP originally planned to arrest Meng Wanzhou on plane, defence lawyers say

The allegations have not been proven in court. Meng was arrested Dec. 1 at Vancouver airport at the behest of the U.S.

Most Read