Question 1

How is my monthly car payment calculated?

Accepted Answer

Your monthly car payment is calculated using the loan amount, interest rate, and loan term. The formula uses compound interest to determine equal monthly payments that cover both principal and interest over the life of the loan.

Question 2

What is a good interest rate for a car loan?

Accepted Answer

A good car loan interest rate typically ranges from 4% to 6% for borrowers with good credit (700+). Excellent credit (750+) can qualify for rates as low as 3-4%, while fair credit (650-699) may see rates of 7-9%. Rates vary based on credit score, loan term, and whether the vehicle is new or used.

Question 3

Should I choose a 60-month or 72-month car loan?

Accepted Answer

A 60-month (5-year) loan is generally better as it minimizes total interest paid while keeping monthly payments reasonable. A 72-month (6-year) loan offers lower monthly payments but significantly increases total interest costs. Avoid terms longer than 60 months unless absolutely necessary.

Question 4

How much should I put down on a car loan?

Accepted Answer

Financial experts recommend putting down at least 20% on a new car and 10% on a used car. A larger down payment reduces your loan amount, lowers monthly payments, and helps avoid being underwater on your loan.

Question 5

Does my credit score affect my car loan rate?

Accepted Answer

Yes, your credit score significantly impacts your interest rate. Excellent credit (750+) qualifies for the best rates, while poor credit (below 650) may result in rates 2-3 times higher. Improving your credit score before applying can save thousands over the loan term.

Question 6

What is the 20/4/10 rule for car buying?

Accepted Answer

The 20/4/10 rule suggests putting down 20%, financing for no more than 4 years, and keeping total transportation costs (payment, insurance, gas, maintenance) below 10% of gross income. This rule helps ensure you can afford the vehicle.

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