Understanding Your Car Loan Payments

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January 27, 2012

Applicants for auto financing need a fundamental understanding of car loan payments before making a purchase. The first fact is the amount your down payment will effect what amount you pay.

Components of a Car Payment

Your car loan payments are made up from 3 different financial aspects that include the principal, interest and term. The principal is the price tag for the car. The interest rate is the percentage of the amount you need to borrow that becomes the finance company's fee earned for lending it to you. The term is the amount of time you will make payments until you own the car. For example, if you buy a $10,000 car at 5% interest with 36 monthly payments the total cost will be $10,800. To calculate a proposed monthly payment, use this loan calculator.

Value at Term End

Keep in mind the longer you make payments, the greater amount of interest you pay on the borrowed amount. Also, longer loan terms leave automobiles at lower resale values since cars depreciate every year.

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