Many buyers end up paying more for a car because they do not understand the concept of financing. A difference of 1 percentage point in the interest rate will change a car payment; you need to know how much. Extending payments over a longer term will lower the monthly payment but result in more money paid overall.
Being Prepared
Using a car payment formula to plug in the total borrowed, interest rate and number of payments helps you be prepared when negotiating the vehicle price with the dealer. Rather than relying on dealer financing, you can calculate your desired monthly payment, then seek financing before entering the dealership. Relying on the financing from the dealer can cost more than financing you arrange for yourself.
Comparisons
Use the car payment formula to see how the different parts of the formula affect financing. Plugging in different amounts for the down payment will show the impact on your monthly payment. Inserting different interest rates shows the increase (or decrease) in the cost of financing your loan, which has a direct impact on your payment. Considering these factors can help you determine the loan term that fits your budget.
Interest Rate vs. Rebate
As a buyer, you may be offered the option of a low interest rate or a cash rebate. By using a financing formula, you can insert different values to see which way is most cost-effective. Consider how long you plan to keep the car; it is better to take the cash if you won't have the car more than three years.
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