3 Big Factors That Affect Your Monthly Car Loan Payment
What’s the biggest purchase you’ll ever make in your lifetime? Buying a house. The second biggest? Buying a vehicle. Just like buying a house, it takes planning and preparation to buy a new car or a quality used car.
In fact, there are three big factors that affect your monthly car loan payment: car loan amount, interest rate, and loan terms. All of it together takes planning and careful consideration to help you get the best loan terms possible.
Here’s a breakdown.
Car Loan Amount
When you’re approved for a car loan, the lender will specify the amount of money you’ll borrow, the interest you’ll pay, and the time period for repayment.
The amount of money you can borrow hinges on:
• whether you still owe money on your current vehicle
• the purchase price of the car you want to buy
• the amount of your down payment
• if you have a vehicle to trade
If you have a current car loan, sometimes lenders will let you roll the old amount in with your new loan. However, this is risky because you can end up owing more money than what the current car is worth.
This is called being upside down on your loan. It is far better to start with a clean slate. If you own your current vehicle outright and it’s in excellent condition, you can consider trading it in as part of the negotiation.
For example, if you bought a $25,000 vehicle with no down payment or trade-in, at 5% interest on a five-year loan, your monthly payment would be $472 (excluding sales tax).
If you got a $7,000 credit on your trade-in, the monthly payment would drop to $340 per month. However, if you don’t have a trade-in, having a good down payment works just as well.
Here at Joe Bowman Auto Plaza, trade-ins are a big part of our business. We offer a fair price for your old vehicle which helps reduce your total loan amount. What’s more, by trading in your vehicle, it saves you the time and expense of trying to sell it yourself.
Interest Rate: How to Get Better Monthly Car Loan Rates
If buying a home is all about location, location, location, buying a car is about good credit, good credit, good credit.
To get the very best interest rate on your loan, make sure your credit is squeaky clean. When buying a car, lenders look at your debt ratio to income. If you have too much debt, you can become a higher risk, so more interest is charged on your loan.
Here are three ways that can help you secure a lower interest rate:
• Build good credit before buying a car. Make on-time payments for your current debts and, if possible, pay off any outstanding debts to improve your credit rating.
• Shop and compare. At Joe Bowman Auto Plaza, we’re a big believer in shopping and comparing rates. That’s because our car loan rates are as competitive as local bank rates. Plus, there’s less paperwork, so you get into your new vehicle quicker. However, if you would prefer to work with your local bank, we can most certainly accommodate you.
• Refinance down the road (if credit rating improves). If your credit rating has been less than stellar before you bought a car but improves during the term of your loan, you might want to re-finance to get a lower interest rate.
Loan Term
When you’re thinking about your loan terms, consider your budget as well as your financial situation. Longer term loans, six years or more, can have higher interest rates.
While shorter term loans mean you’ll pay more monthly, it also means you’ll pay less interest over the life of the loan.
For example, if we go back to our $25,000 loan with a lower 4.5% interest rate and a six-year term instead of five, you’ll pay $69 more each month in payments.
But the additional interest on the longer term loan adds $608 to the total cost of the vehicle.
Bottom line. Always work within your budget. Just make sure that what you budget makes sense in the long run.
When you’re ready to buy a new or used vehicle, turn to the pros at Joe Bowman Auto Plaza. We’ve been helping people just like you for 60+ years get into the vehicle of their choice! Check out our website to learn more about us!
In fact, there are three big factors that affect your monthly car loan payment: car loan amount, interest rate, and loan terms. All of it together takes planning and careful consideration to help you get the best loan terms possible.
Here’s a breakdown.
Car Loan Amount
When you’re approved for a car loan, the lender will specify the amount of money you’ll borrow, the interest you’ll pay, and the time period for repayment.
The amount of money you can borrow hinges on:
• whether you still owe money on your current vehicle
• the purchase price of the car you want to buy
• the amount of your down payment
• if you have a vehicle to trade
If you have a current car loan, sometimes lenders will let you roll the old amount in with your new loan. However, this is risky because you can end up owing more money than what the current car is worth.
This is called being upside down on your loan. It is far better to start with a clean slate. If you own your current vehicle outright and it’s in excellent condition, you can consider trading it in as part of the negotiation.
For example, if you bought a $25,000 vehicle with no down payment or trade-in, at 5% interest on a five-year loan, your monthly payment would be $472 (excluding sales tax).
If you got a $7,000 credit on your trade-in, the monthly payment would drop to $340 per month. However, if you don’t have a trade-in, having a good down payment works just as well.
Here at Joe Bowman Auto Plaza, trade-ins are a big part of our business. We offer a fair price for your old vehicle which helps reduce your total loan amount. What’s more, by trading in your vehicle, it saves you the time and expense of trying to sell it yourself.
Interest Rate: How to Get Better Monthly Car Loan Rates
If buying a home is all about location, location, location, buying a car is about good credit, good credit, good credit.
To get the very best interest rate on your loan, make sure your credit is squeaky clean. When buying a car, lenders look at your debt ratio to income. If you have too much debt, you can become a higher risk, so more interest is charged on your loan.
Here are three ways that can help you secure a lower interest rate:
• Build good credit before buying a car. Make on-time payments for your current debts and, if possible, pay off any outstanding debts to improve your credit rating.
• Shop and compare. At Joe Bowman Auto Plaza, we’re a big believer in shopping and comparing rates. That’s because our car loan rates are as competitive as local bank rates. Plus, there’s less paperwork, so you get into your new vehicle quicker. However, if you would prefer to work with your local bank, we can most certainly accommodate you.
• Refinance down the road (if credit rating improves). If your credit rating has been less than stellar before you bought a car but improves during the term of your loan, you might want to re-finance to get a lower interest rate.
Loan Term
When you’re thinking about your loan terms, consider your budget as well as your financial situation. Longer term loans, six years or more, can have higher interest rates.
While shorter term loans mean you’ll pay more monthly, it also means you’ll pay less interest over the life of the loan.
For example, if we go back to our $25,000 loan with a lower 4.5% interest rate and a six-year term instead of five, you’ll pay $69 more each month in payments.
But the additional interest on the longer term loan adds $608 to the total cost of the vehicle.
Bottom line. Always work within your budget. Just make sure that what you budget makes sense in the long run.
When you’re ready to buy a new or used vehicle, turn to the pros at Joe Bowman Auto Plaza. We’ve been helping people just like you for 60+ years get into the vehicle of their choice! Check out our website to learn more about us!
