I'm Jason with the honest finance Channel and today I want to talk about
car loan interest rates if you just came across this content give the video a
like and feel free to subscribe to my channel if you want to learn more about
financial subjects now on to car loan interest the interest that you're paying
on your car is actually really easy to understand car interest rates work the
same way as other interest rates you've just got to understand the payment
schedule in order to know more about your car loan than most of us do if you
want to know more about buying a car check out my other video on the five
biggest mistakes of buying a car this video is just about the interest rates
so let's pretend that you buy a car at your local dealer for $22,000 and after
taxes and fees and all that stuff the total amount ends up costing you $24,000
that you're gonna be financing and let's say that you've got good credit so you
end up with an interest rate of 3% and you decide that you want to do the loan
for 60 months you're gonna be paying four hundred and thirty one dollars a
month on that loan for sixty months now how did I get that number it's really
easy you just have to look up a payment calculator online plug in a few numbers
and you're done I'll show you really quick on a loan app
on my phone the app is literally called loan and all you do is you just plug in
the numbers twenty four thousand at three percent over sixty months or five
years in the case of this app now take a look down here at the total interest
you're gonna be paying on that loan looks like you'll pay eighteen hundred
and seventy five dollars on a three percent loan on that car that's a lot of
money to be spending on interest and that's a really low rate now let's look
at the payment schedule this one's really useful because it's
gonna break down the amount of money that you're spending on interest and
principal on a monthly basis throughout the term of the loan so from this
information you're gonna be paying three hundred and seventy one dollars your
first month in principle and sixty dollars in interest now look at month
twelve you're now paying three hundred and eighty two dollars in principle and
fifty dollars in interest 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 three percent rate is just charging you
interest on what you owe so as you Oh 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 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 and one more thing you really want to avoid 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 percent 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 I'm Jason with the
honest finance channel feel free to subscribe if you're into this kind of
information or at least give the video alike that's all