Press "Enter" to skip to content

Car Loan Interest Explained The Easy Way

Car Loan Interest Explained The Easy Way Im Jason with the honest finance Channel and today I want to talk about car loan interest rates if you just came across this content give the article a like and feel free to subscribe to my channel if you want to learn more about financial subjects now on to car loan interest the interest that youre paying on your car is actually really easy to understand car interest rates work the same way as other interest rates youve just got to understand the payment schedule in order to know more about your car loan than most of us do if you want to know more about buying a car check out my other article on the five biggest mistakes of buying a car this article is just about the interest rates so lets pretend that you buy a car at your local dealer for $22,000 and after taxes and fees and all that stuff the total amount ends up costing you $24,000 that youre gonna be financing and lets say that youve got good credit so you end up with an interest rate of 3 and you decide that you want to do the loan for 60 months youre gonna be paying four hundred and thirty one dollars a month on that loan for sixty months now how did I get that number its really easy you just have to look up a payment calculator online plug in a few numbers and youre done Ill show you really quick on a loan app on my phone the app is literally called loan and all you do is you just plug in the numbers twenty four thousand at three percent over sixty months or five years in the case of this app now take a look down here at the total interest youre gonna be paying on that loan looks like youll pay eighteen hundred and seventy five dollars on a three percent loan on that car thats a lot of money to be spending on interest and thats a really low rate now lets look at the payment schedule this ones really useful because its gonna break down the amount of money that youre spending on interest and principal on a monthly basis throughout the term of the loan so from this information youre gonna be paying three hundred and seventy one dollars your first month in principle and sixty dollars in interest now look at month twelve youre now paying three hundred and eighty two dollars in principle and fifty dollars in interest so why are these numbers getting better over time this is happening because as you pay down the principal on your loan you dont owe as much on it anymore and the three percent rate is just charging you interest on what you owe so as you Oh less you pay less an interest its really not very complicated its seriously not rocket science I dont want to over complicate things with fancy math formulas I just want to show you an easy way of figuring out how much interest youre paying on your car loan this is how I do it and I do it for all different types of loans whether it be a house a car a toy whatever Im financing I just plug in these numbers and I can figure out if I can afford it or not its a really good idea to know how much youre paying an interest on a loan so that you can figure out how much you can truly afford and how much money and interest youre gonna be throwing away and one more thing you really want to avoid getting a loan for longer than 60 months because generally speaking an auto loan over 60 months is probably gonna cause you to go upside down in your car loan so what is upside-down mean its really simple it just means that you owe more on your car then its actually worth so lets say that the car you paid $24,000 for was only worth $16,000 at the end of two years well if you still owe $18,000 at that same point because you decided to do some stupid 84 month loan then youre now down $2,000 on that car meaning youre upside down in your car loan also keep in mind that interest rates are typically higher the longer you have the loan for so if the average 60 month loan is 3 then an 84 month loan is probably going to be about 5 interest so youre gonna be paying more an interest for the car and youre more likely to end up upside down in the car – please be smarter with your money you dont have to do what the average person is doing with their car loan apparently the average car loan is for 68 months at 4.2 percent on a loan thats $30,000 so that means that most of us are definitely ending up upside down and were not following any of these steps hopefully you learned something today Im Jason with the honest finance channel feel free to subscribe if youre into this kind of information or at least give the article alike thats all

Be First to Comment

    Leave a Reply

    Your email address will not be published. Required fields are marked *