7.3: Financing

• When you use borrowed money to buy something, the interest that you pay on the loan increases the cost of the item.

• For expensive items like vehicles, the interest cost can be a significant expense.

The interest you pay on a car loan is part of the cost of owning that vehicle. Most people will research makes and models of vehicles and negotiate for the best purchase price. Often, however, they won't think carefully about their borrowing options.

• Personal Loan

• Car Loan (Bank)

• Car Loan (Dealer Financing)

• Line of Credit

• Credit Card

• You should calculate the interest cost of your car loan to get a realistic figure of the actual cost of the vehicle.

• Assume you are borrowing $15,000.00 to buy a vehicle. The bank is offering 7.5% financing for a 4 year loan.

• Use an online Auto Loan Payment Calculator

1. Interest Rate

You should get quotes from a variety of banks to make sure that you can find the best interest rate. Dealer financing may also offer you very attractive interest rates.

When choosing a type of loan, secured loans (such as car loans) will offer you better rates than unsecured loans.

2. Size of the Loan

It seems obvious, but the less money you borrow, the lower your interest payments. If you can save some money for a down payment on a vehicle, you won't have to borrow as much from the lender. Even one or two thousand dollars down payment can make a big difference on your borrowing costs.

3. Length of the Loan

You should select the length of time and payment method based on what you can afford when you look at your entire financial picture. Although you may want to pay off the loan as quickly as possible, you may not be able to afford the larger payment.

​Use the link on the next slide to help answer the questions that follow.

​

• Use the online Auto Loan Payment Calculator to answer the following.

• You have borrowed $15,000.00 to buy a vehicle. The bank is offering 7.5% financing for a 4 year loan. Recall that the monthly payment was $409.83.