Rather, the interest charge line decreases at an increasing rate while the line displaying how much of the principal each payment covers actually increases at an increasing rate.
It is important to realize that your interest rate is not the only factor that affects the total amount of interest charge you pay for your car loan. Your car loan term length plays a major role in how much you pay for your car no matter what interest rate you have. As a general rule, for the same interest rate, the longer your term length, the more your cumulative interest charge will be.
However, you have a choice between a four year loan or 48 months and the five year loan or 60 months that we have discussed so far. Looking at the monthly payment, you may be tempted to take the 60 month loan because it saves you money every month — and this decision is not necessarily wrong. Still you should consider the effect the extra 12 months will have on the interest charges you pay over the course of the loan.
As you can see, the total interest charges you pay on the 60 month loan climb higher than those of the 48 month loan. Moreover, the 60 month loan levels off later than the 48 month loan, meaning that the portion of each of your monthly payments that covers your monthly interest charges is greater for the 60 month loan than for the 48 month loan. At this point, it is important to note that it is possible to have a longer car loan term length and still pay less for your car than with a loan of a shorter term length if your longer term loan has a sufficiently lower interest rate.
Understanding interest rates and loan term lengths and how they interact is important if your are considering refinancing a car because refinance customers often both extend their term lengths and secure lower interest rates.
Furthermore, the concept of how car loan term length affects your cumulative interest charges has important implications for how you can save money on your current car loan. Since your interest charge every month is based on how much you still owe on your loan, you can reduce your interest charges by making unscheduled payments that bring down your loan balance.
When you make unscheduled payments, you are engaging in an accelerated car loan payoff which will reduce the total amount of interest charges you pay over the course of your loan and may help you pay back your loan faster than originally planned. Paying a debt like a car loan early is generally a good thing, because you end up paying less interest charges.
However, you should always consider your entire financial situation before choosing to make unscheduled payments. Obviously, you need to have the extra cash to make such a payment, but even if you do, you have to ask yourself if you have better uses for that extra money. Ultimately, you should consider carefully if an accelerated payoff makes sense for you. If you refinance to a lower interest rate, you may pay significantly less for your car loan in the long-run and reduce your monthly payments.
Pre-qualify now with no credit impact. Check Your Rates Trustpilot. If your car is worth more than what you currently owe, on the other hand, you may be able to pocket the difference in cash when you sell the car. Whatever your situation, reach out to your lender about your options, as each lender sets different rules for selling a car with a loan. Choosing between a dealership and a bank for an auto loan is complicated.
In general, dealerships may offer higher rates than banks — but this may not be the case for used cars. Regardless, it's important to get quotes from a few banks or online lenders first; that way you can come to the dealership prepared. Ask for a quote from the dealership as well, comparing rates, terms and any additional fees. Many lenders require some form of down payment on a car.
However, that's not necessarily a bad thing; making a down payment will lower your monthly payments — and the larger your down payment, the more you save.
Making a larger down payment could also lower the interest rate the lender offers you. Current Auto Loan Rates for November Written by Holly D. Written by. Holly D. Holly Johnson writes expert content on personal finance, credit cards, loyalty and insurance topics.
In addition to writing for Bankrate and CreditCards. Edited By Aylea Wilkins. Edited by. Aylea Wilkins. How to choose a car loan that's right for your family. Please read this important information. Online Enquiry General Enquiry. Business Banking Enquiry. Please complete the below enquiry form for assistance.
Please note, for your protection and privacy, we are unable to discuss your accounts via email. Member number. Are you a member? Is this a lending enquiry? Other additional info. Share this page Facebook Twitter Close share modal. Hi There! Can I help? Thank you Contact us. Please refer to their privacy policy and terms of use for details. Purchasing a car typically means taking out a car loan.
When you take out a car loan from a financial institution, you receive your money in a lump sum, then pay it back plus interest over time. How much you borrow, how much time you take to pay it back and your interest rate all affect the size of your monthly payment. Let's see how adjusting each of the 3 factors can affect your monthly payment:. Use the Bank of America auto loan calculator to adjust the numbers and see how differences in loan amount, APR and loan term can affect your monthly payment.
One of the most important things to understand about how auto loans work is the relationship between the loan term and the interest you pay. A longer loan term can dramatically lower your monthly payment, but it also means you pay more in interest.
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