After 3 years, new cars are worth about 42 percent less than purchase price. To avoid going “upside down” on your loan-owing more than the car is worth-try to make the biggest down payment you can manage. In general, the shorter your loan term and the higher your credit score, the lower your interest rate.Ī new car’s value drops when you drive it off the lot. Often, you can negotiate the APR with the dealership, too. It’s important to shop around in order to find the lowest interest rate.
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The annual percentage rate, or APR of a loan, is the interest rate plus any other fees the lender charges. Try this auto loan calculator to get a better picture of how car price, trade-in-value and other factors can affect your monthly payment. The majority of people choose a loan they can pay within five to six years.ġ6%: 49–60 month terms. Check out the example below.įor a $30,000 car with a $5,000 down payment and 5 percent interest rate.Ĥ8-month term Estimated total interest paid: $2,793.44Ħ0-month term Estimated total interest paid: $3,505.40ħ2-month term Estimated total interest paid: $4,228.16 It’s important to calculate how much more interest you will owe by stretching payments over time. A longer term means smaller monthly payments, but also more interest paid in total over the life of the loan. The term is how long you have to pay back your loan. $0 down payment Estimated monthly payment: $566 $5,000 down payment Estimated monthly payment: $472 A trade-in can also count as a down payment in certain instances.įor a $30,000 car with a 5 percent interest rate over a 60-month loan: For the lender, it reduces risk and offsets some of a new car’s initial value depreciation. You have less control over your financing optionsĪ down payment is a lump sum paid up-front that often reduces the size of your monthly payments.The dealer handles the relationship with the lender.Getting approved in advance makes it easier to shop around between dealers.Shopping around between different lenders can help you find the best rate. Most car buyers need some kind of financing to purchase their vehicle. Knowing your approved interest rate and how much you can borrow ahead of time helps you budget and puts you in the driver’s seat when you are at the dealer. You can get pre-approved for an auto loan by a bank, credit union or online lender before you even begin car shopping. Knowing this information will help you determine your down payment-the more you pay upfront, the less you pay each month for your auto loan. Also, consider whether you plan to trade in an existing automobile. Before you buy a vehicle, review your monthly budget so that you know what you can responsibly afford.
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