Saturday, 5 January 2019

Car Loan Interest Rate - What You Need To Know

Car Loan Interest Rate - What You Need To Know

The interest you are paying on your car is actually easy to understand, car interest rate works the same way as other interest rates you just have to understand the payment schedule in other to know more about your car loan like most of us do.

If you want to know more about buying a car check out this article.

Read: Car Buying Mistakes You Need To Avoid at the Dealership

This article is about the interest rate, let pretend you buy a car at your local dealer for $22,000 after taxes/fees and other stuff the total amount ends up costing you $24,000 you are going to be financing.

  • Let say you got good credit so you end up with the interest rate of 3% and you decide you want to do the loan for 60 months, you are going to be paying $431 a month on that loan for 60 month

How do I get that numbers? It's really easy you just have to look for payment calculator online then put in a few numbers, I would show you the loan app on my phone. The app is call loan, just plug in the numbers $24,000 at 3% over 60 months or let say 5 years.

 Car Loan Interest Rate - What You Need To Know

Car Loan Interest Rate - What You Need To Know

Take a look at the total interest you are going to be paying on the loan, you will be paying $1874.91, that is a lot of money to be paying on interest, now let look at the payment schedule, this app is really useful because it's going to break the amount of money you are spending on interest on a monthly basis throughout the term of the loan.

Car Loan Interest Rate - What You Need To Know

From this information, you are going to be paying $371 in your first month and $60 in interest

Now look at month 12, you are now paying $381 and $50 in interest

Car Loan Interest Rate - What You Need To Know

Why these numbers keep getting better over time? The 3% rate is just charging interest on what you owe, so as you own less, you pay less on interest, it's not that complicated.

I don't want to over complicate thing with fancy math formula I just want to show you the easy way of figuring out how much interest you are paying on your car loan. 

  • This is how I do it and I do it for all different type on loan, cars, house, whatever am financing I just plug in this number into that app and I can figure out if I can afford it or not.

It's a good idea to know how much you are paying in interest on a loan so that you can figure out how much you can thoroughly afford, also you need to avoid getting a loan for longer than 60 months.

An auto loan over 60 months probably going to cost you to go upside down in your car loan, what it's upside down mean? It means you owe more on your car than its worth. Let say the car you pay $24,000 for was only worth $16,000 at the end of 2 years.

If you still owe $18,000 at that same point because you decided to do some stupid 84-month loan, then you owe $2,000 on that car. Keep in mind that interest rate is typically higher the longer you have the loan for it, so if the average 60-month loan is 3% then the 84-month loan is probably going to be about 5%  interest.

You are going to be paying more interest for the car and you are more likely to end up owing more money on your loan, be smart with your money, you don't have to do what is an average person is doing with their car loan.

Hopefully, you learn something today, do leave a comment if you have anything to say

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