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The Calculation Of Car Loan Payments In Grimsby

The Calculation Of Car Loan Payments In Grimsby

We all know that borrowing money to buy a car in Grimsby requires a monthly payment to repay. But do you know what goes into that monthly payment or how it’s calculated? Our Grimsby auto loan team explains exactly what’s going on each month with the calculation of car loan payments.

 

Calculation of Car Loan Payments in Grimsby

 

An auto loan is the second largest expense most of us will have in our lives. Aside from a mortgage, we will spend more on cars than on anything else so it’s important to understand as much as you can about the process.

 

When you first take out an auto loan, you will agree a principal amount to borrow, an interest rate and a term for the loan, how many month’s you’ll be paying it. All those things combine to make up your monthly payment.

 

The principal amount

 

Interest rate

 

Loan term

 

Essentially, your monthly payment is made up of principal amount + interest / loan term.

 

If your Grimsby auto loan includes fees, these are usually broken down and added to your monthly payments.

 

The principal amount

 

The principal amount on a car loan is the headline amount you borrow. That’s the loan you’re going to use to buy the car.

 

The amount you borrow will be determined by your budget, the car you want to buy, your credit score, income and affordability. All those things will combine to decide how much you’ll borrow for the loan.

 

The more you borrow, the more you’ll have to repay each month to have it all paid off by the end.

 

Interest rate

 

The interest rate has to cover the rate the lender will pay to the institution or investor they borrow from and a little on top for profit.

 

Interest rates will also include cover for risk. The higher the risk you are perceived to be as a borrower, the higher the interest rate you’ll be charged.

 

This is purely a financial decision and nothing personal. If you have bad credit or less than perfect credit history, your perceived risk will be higher than someone with perfect credit. The lender will hedge their bets with a slightly higher interest rate to cover themselves against potential lost.

 

Again, nothing personal.

 

The interest rate is charged annually, broken down into daily amounts, multiplied by the payment schedule (usually monthly) and added to your monthly payment.

 

Loan term

 

The loan term is the number of months you’ll be repaying the loan. This is calculated in years but expressed in months as that’s how we all pay our auto loans. So, a five year loan is expressed as 60 months, 6 years as 72 months and so on.

 

The term influences your monthly payment because you need to have all the principal paid off by the end, plus interest.

 

The longer the loan term, the lower the monthly payments. The shorter the loan term, the higher the monthly payments.

 

Working out monthly payments for an auto loan in Grimsby can be complex but is logical. Using a loan calculator is usually much easier!

 

Better still, why not let our Grimsby auto loan team do it for you?

 

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.

 

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Categories: Auto Loan

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