Very Easy Way to Explain the Car Loan Interest Rates

Very Easy Way to Explain the Car Loan Interest Rates

Lot's talk about car loan interest rates, if you just came across this content give the one article share and feel free to subscribe to my website by email, if you want to learn more about financial subjects. Car loan interest that you're paying on your car is actually really easy to understand. Car loan interest rates work the same way as other interest rates. You've 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, car insurance checks out my other blog article. This article is just about tar loans interest rates.

Very Easy Way to Explain the Car Loan Interest Rates
Calculate Car Loan Interest

How To Calculate Car Loan Interest

Let's 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 you're going to be financing. Let's say that you've got good credit. You end up with an interest rate of 3% and you decide that you want to do the car loan for 60 months. You're going to be paying $431 a month on that car loan for 60 months. How did I get that number? It's really easy you just have to look up a payment calculator online plug in a few numbers and you're done. I'll show you quickly on a loan app on my phone the app is literally called “Loan” and all you do is you just plug in the numbers. 24000 at 3% over 60 months or 5 years in the case of this app. Take a look down here at the total interest you're going to be paying on that car loan. Looks like you'll pay $1874.91 on a 3% loan on that car. That's a lot of money to be spending on interest and that's a really low rate.

Very Easy Way to Explain the Car Loan Interest Rates
Payment Schedule

Car Loan Payment Schedule

Let's look at the payment schedule. This one's really useful because it's going to break down the amount of money. That you're spending on interest and principal on a monthly basis, throughout the term of the car loan. From this information, you're going to be paying $371.25 your first month in principle and $60 in interest. Look at month 12; you're paying $381.59 in principle and $49.66 in interest. Why are these numbers getting better over time this is happening, because as you pay down the principal on your car loan. You don't owe as much on it anymore. And the 3% rate is just charging you interest on what you owe. As you all less, you pay less an interest it’s really not very complicated. It's seriously not rocket science. I don't want to over complicate things with fancy math formulas. I just want to show you an easy way of figuring out, how much interest you're paying on your car loan.

This is how I do it, and I do it for all different types of loans. Whether it is a home loan a car loan a toy whatever I'm financing, I just plug in these numbers and I can figure out if I can afford it or not. It's a really good idea to know, how much you're paying interest on a loan. That you can figure out how much you can truly afford and how much money and interest you're going to be throwing away?

Avoid The Upside-Down in Your Car Loan

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 going to cause you to go upside down in your car loan. What is upside-down mean? It's really simple it just means that you owe more on your car then it's actually worth.

Let's say that the car you paid $24,000 for was only worth $16,000 at the end of two years. If you still owe $18,000 at that same point because you decided to do some stupid 84-month car loan. Then you're now down $2,000 on that car. Meaning, you're upside down in your car loan. Also, keep in mind that car loan interest rates are typically higher the longer you have the loan for. If the average 60-month loan is 3% then an 84-month car loan is probably going to be about 5% interest.

You're going to be paying more an interest for the car and you're more likely to end up upside down in the car too. Please be smarter with your money. You don't 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% on a loan that's $30,000. That means that most of us are definitely ending up upside down and we're not following any of these steps. Hopefully, you learned something today.

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