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This is a consumer credit scheme which allows qualified individuals to part-finance acquisition of cars for personal use. Customers can own a car and pay over a period of time, it enables customer purchase vehicles from auto dealers who have been prequalified and have agreed an SLA with the bank
As with almost any loan, an auto loan consists of two distinct parts: the principal and the interest. The principal is the amount of money that is lent and is determined by the value of the vehicle. For instance, if you are using an auto loan to purchase a used truck that costs $10,000, then the principal amount for your loan would also be $10,000..
Depending on the vehicle and the dealership, there might or might not be a required down payment amount. The larger the down payment, the lower the principal of the auto loan, which means lower costs for the borrower and reduced risk for the lender. If the borrower in that example put down a $1,000 down payment on the $10,000 truck, then the amount of their auto loan would only be $9,000.
The interest on the other hand, is the amount of money that the lender is charging you on top of amount lent. It is essentially the “cost” of the loan, or how much the lender is charging you for the privilege of borrowing money. Generally, interest is expressed as an interest rate, which is a certain percentage of the principal over a certain period of time.
Auto loans are typically structured as installment loans, which means that the loan is paid off in a series of regular (usually monthly) payments.