The overall cost of new car finance will be decided by the interest rate and the time over which you pay. You can use a car loan calculator to find out the cheapest loans, and also the best way according to what your affordable monthly repayments are. To some people the amount of each monthly payment is not of considerable importance, while to others it is critical, and in the latter case you can increase the repayment term and pay less each month. However the overall cost of your loan in terms of capital repayment and interest payments will be higher.
It is usually true that the longer period over which you pay, the more interest you will have paid by the time you have paid off the loan. A car loan calculator will be able to work that out for you, and let you know how much interest you will be paying. However, you can reduce the cost a new car loan by careful selection of the lender. Not all are the same, so what should you be looking for?
First try to get a lender that will provide you with a guaranteed fixed interest rate for the period of the loan, whether that be one or five years. Not all do this, but it is possible to find lenders that will give you this security. Because your car is new you will be able to negotiate a secured car loan, with the car as security. This will generally allow you a lower comparative interest rate on your car loan, and so the cost will be less than if your loan was unsecured.
However, there are hidden expenses in buying a new car other than the new car loan costs themselves. If you have a secured loan, the lender will require the car to be well looked after and maintained, and will insist on you having a fully comprehensive auto insurance policy. This is so that, should anything happen to the car, it will not lose value through you being unable to afford a repair or even a replacement, depending on the severity of the accident.
You will find this true of any secured new car loans, and it is an expense that you will have to be aware of when deciding on the size of loan that you can afford to repay. It more than uses up the benefit of a lower interest rate car loan through the loan being secured on your vehicle, and could be an unbearable burden unless you are aware of it and have taken the cost into consideration in your calculations.
Vehicle Finance Calculators
An auto loan calculator will enable you to determine the monthly repayments at a specific interest rate over a set period, but this will not include the auto insurance. However, there might be a way out if this means that you can’t afford the loan you need. If you feel that you will be financially better off at the end of the loan term, then you could apply a balloon.
This is bit like paying a deposit on the car, but at the end of the loan as opposed to at the beginning. You state a sum to be paid in cash at the end of the loan period, and that is taken from the amount of the loan. Your monthly repayments are correspondingly less, and you can afford the loan you need plus the comprehensive insurance payments. As you earn more money you can save up for the balloon payment at the end.
Most lenders offer this option, and it is a good one for those whose earnings are expected to increase during the course of the loan. If you find you can’t afford the balloon payment, then you might have no option to either take out another loan to pay it or to sell the car to raise the money. However, it is a good option worthy of consideration if you need more money than you can initially afford to repay.
The cost of new car loans, then, is a combination of interest rate, period of the loan and the amount you borrow, but you must also take the comprehensive insurance policy into consideration. The option of a balloon payment allows you to reduce your monthly repayments, but not the over cost since you are still paying interest on the entire loan, balloon included.
