880 Walkers Line, Burlington, ON, L7N 2G2, Canada

The Actual Cost Of Car Loans In Grimsby

The Actual Cost Of Car Loans In Grimsby

We all know that a car loan is made up of the principal amount and interest but how is it all calculated? How can you work out the actual cost of car loans?

 

Our Grimsby car loan team walks you through the basics of calculating the real cost of a car loan.

 

How is a car loan calculated?

 

The actual cost of car loans are made up of three elements. The principal amount, the interest and the term.

 

  • The principal amount is the cash amount you borrow to buy the car. This will usually be the headline figure and the one you pay most attention to.
  • The interest rate is how much the lender will charge you to lend the money. This is expressed as a percentage.
  • The term is the number of months you take out the loan for.

 

Some loans will also include fees such as administration fees or application fees. This can be paid in full at the time of added to the loan amount. If you add them to the amount, you’ll pay interest on those too.

 

Interest rates will vary depending on the amount being borrowed, the term, your credit score and the lender.

 

Interest is applied over the term, so while the headline rate may be low, you have to calculate how much it will cost over the term to get the true cost of borrowing.

 

This is incredibly important and something we’ll cover in more depth next.

 

Examples of car loan costs

 

Let’s take a couple of examples of a car loan so you can see where the money goes.

 

For example, you borrow $25,000 and have a $5,000 down payment so the principal amount is $20,000. The interest rate is 4.1% over 48 months.

 

Your monthly payment might be $452.48 over that time with a total cost of interest of $1,718.88.

 

Assuming no fees and no provincial sales tax, that would be a ballpark cost of the car loan.

 

If you extended that loan to 96 months, your monthly payment would reduce to $244,72 but the total interest charged increases to $3,492.83.

 

Another example, you borrow $42,000 with a $10,000 down payment. Principal amount $32,000 with an interest rate at the same 4.1% over 96 months.

 

Your monthly payment would be $391.55, which is lower than a smaller loan but the total cost of interest is $5,588.23!

 

Again, assuming no fees or provincial taxes.

 

As you can see, the true cost of a car loan depends on a lot more than the headline rate. While it will influence how expensive your monthly payments are, the impact of the interest rate becomes a lot clearer when you work out the total cost of interest.

 

Most auto loan calculators will show you the total cost but not all do. It’s important for you to balance the practicality of having lower payments over a longer term with the higher overall cost of the loan.

 

That’s a decision only you can make!

 

We will use all our skill and experience to deliver the lowest possible Grimsby auto loan rates, guaranteed. Contact Car Nation Canada Direct to learn how we can help.

 

Thanks for reading. Be sure to connect with us on Facebook, Twitter, Instagram, or LinkedIn to stay up to date on our latest great articles!

Categories: Auto Loan

Tags: ,