So, why are these numbers getting better over time? This is happening because as you pay down the principal on your loan, you don’t owe as much on it anymore and the 3% rate is just charging you interest on what you owe. So as you owe 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 be a house, a car, a toy, whatever I’m financing, I just plug in these numbers and I can figure out if I can afford it or not.
Things To Avoid When Getting a Car Loan
It’s a really good idea to know how much you’re paying an interest on a loan so that you can figure out how much you can truly afford and how much money and interest you’re gonna be throwing away. One more thing you really want to avoid is getting a loan for longer than 60 months, because generally speaking an auto loan over 60 months is probably gonna cause you to go upside down in your car loan. So, what is upside-down mean? It’s really simple, it just means that you owe more on your car then it’s actually worth.
So, let’s say that the car you paid $24,000 for was only worth $16,000 at the end of two years. Well, if you still owe $18,000 at that same point because you decided to do some stupid 84 month 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 interest rates are typically higher the longer you have the loan for. So, if the average 60 month loan is 3% then an 84 month loan is probably going to be about 5% interest. So, you’re gonna be paying more an interest for the car and you’re more likely to end up upside down in the car. 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, so 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. Feel free to leave a comment and share your experience.