3 Factors You Need To Understand About Financing A Vehicle
If you have a vehicle you are interested in purchasing, you will want to figure out if you want to pay cash for the car or if you want to finance the vehicle. Financing the vehicle will allow you to have more cash flow and spread the cost of purchasing a vehicle.
#1: Total Purchasing Price
When it comes to purchasing a vehicle, it is essential to understand the total price you will end up paying for the car. The total purchase price includes the price of the vehicle, as well as all the add-ons. Add-ons include things such as registration fees, extended warranty policies, taxes, and extra options you have added to the vehicle.
You can finance the total purchasing price of the vehicle. Or you can pay for the taxes, fees, and add-ons separately and then finance the cost of the vehicle.
#2: Interest Rate
The second factor you need to consider is the interest rate. The interest rate is also called the APR. The APR is a big factor when it comes to purchasing a vehicle. The interest rate is going to impact what you pay for the car. An interest rate of 6% or 9% will greatly change the overall price you pay for a vehicle.
If you finance $10,000 for 60 months at a 3% interest rate, you will pay $781 in interest over the life of the loan. If your interest rate is 6%, you will pay $1,600 over the life of the loan. Or, if your interest rate is 9%, you will pay $2,455. The higher the interest rate, the more you will pay for the vehicle over the life of the loan.
That is why you are going to want to look for a vehicle with a lower interest rate.
#3: Loan Terms
Third, you need to consider the loan terms, which are essentially the length of the loan. That is how long you have to pay off the loan. The longer the loan, the longer the interest on the loan will accumulate.
For example, with a $10,000 loan for 48 months, with 3% interest, you will pay $624, and with a loan term of 60 months, you would pay $781. From 48 months to 60 months, the longer loan term, at 3% interest for $10,000, would cost you $157. With a higher interest rate, the impact is even more significant.
For example, a loan term of 48 months for $10,000 at a 9% interest rate would cost you $1,945, and a loan term of 60 months would cost you $2,455. It would essentially cost you $510 more dollars by extending the repayment period another 12 months.
When it comes to financing a car, you need to figure out what costs you will be financing — the total purchase price or just the cost of the vehicle minus your down payment. You need to understand how the interest rate and loan terms work together to impact the overall amount that you are paying for the car. The loan will increase the overall cost of the vehicle.
For more information, contact an auto lending service in your area.