everyone wants or needs to buy a vehicle; and
unless you have a money tree in your backyard, you’re going to
need to take out a loan.
Virtually every new car purchase requires financing from a bank
or other financial institution. The only other choice is to pay
cash, an option few of us have at our disposal. If you’re in
the market for a new car you’ll need financing, and in order to
make the right decisions you need to know about car loan
calculations. If you fully understand how to make car loan
calculations, you’ll be able to estimate the values involved in
your purchase, as well as balance the expenses that come with
buying a new car. Knowing this information is crucial to
buying a car that’s within your budget.
Car loan calculations involve a number of factors. Consider
the loan term, interest rate and loan principal and work them
into your calculations. Only then will you know if the car you
want is the car you’re able to afford.
Loan Term
Basically, this is amount of time it will take to pay the loan
in full. A shorter term will mean higher monthly payments, but
the loan will be paid off faster. Longer terms involve more
affordable monthly payments, but it will take more time to meet
your obligation. The length of your loan term can also affect
the interest rate, and can increase the amount you pay in
interest overall.
Interest Rate
No banks or finance companies will lend you money out of the
goodness of their hearts. They make money from interest. The
interest rate determines how much extra you will pay for the
convenience of borrowing money. Interest rates will fluctuate
based on the market, and lenders will try to get your business
by offering a lower rate. Shopping around for a good rate can
save you hundreds of dollars over the term of the loan.
Loan Principal
This is the base amount of money you borrow, before any
interest or financing fees are added on. The amount of your
monthly payments, and the total amount of interest you pay, are
based solely on the principal amount. Naturally, the monthly
payments and overall interest will get higher as the principal
increases. If you find that the monthly payment is beyond your
means, then you should consider starting with a smaller loan
principal. In some cases, the term “loan principal” can also
be used when referring to your outstanding loan balance. At
any given time during the term of your loan, you can check to
see what your existing loan principal is.
If your loan is an amortization, you’ll find that your first
few months of payments will only pay off the interest amount.
You can pay $500 a month for 8 or 9 months, only to find that a
fraction of that amount has been taken off of the principal.
Over time, however, the payments will balance out and you’ll
begin to see more money coming off of the principal.
Eventually, the entire loan will be paid.
Buying a car always seems like a great idea, but the payments
really can be quite overwhelming. Don’t put yourself in a
situation where there’s more month than money. Car loan
calculations are absolutely necessary to putting yourself in
the driver’s seat, without putting yourself in the hole.
About The Author: Susan Miller contributes articles to several
web sites, including http://reviewssource.com and
http://club-product.com
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