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Valued Member
Posts: 47
Registered: ‎03-17-2013
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How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

Is it the same as credit cards?

http://ficoforums.myfico.com/t5/Credit-Cards/How-do-they-calculate-interest/m-p/2330891#M656982

Is there anyway to avoid paying interest?

Could you pay more to avoid some of the interest?

 

I have no mechanical experience and I will have my neighbor check the car in person since he fixes his own and his wife's vehicles. I am likely to buy a used car from a private or car dealer. I want a warranty, and full coverage (I am 21, this would be my first car, I live in Detroit, so my insurance will be high). I am considering a Truck, SUV, 4 door sedan, or anything that would give me lower insurance rates and/or not as much money to have to spend on gas, but perferably in insurance rates since that will cost me the most. Geico offers me $530 for full coverage and esurance $266 for no fault, I used the 2001 Honda Civic for the quotes.

 

What type of loan has the least interest to pay and is most beneficial?

Do Auto loans really help your auto insurance score?

 

Any car buying tips, or any other information and advice you have will be greatly appreciated. Thank you.



Starting Score: 03/17/2013 665 EQ 01/09/2013 EX 724 TU 739?
Current Score: 03/27/2013 682 EQ 01
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Valued Member
Posts: 47
Registered: ‎03-17-2013
0

Re: How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

[ Edited ]

Please help.

 

I read the first time buyer sticky, doesn't really help.



Starting Score: 03/17/2013 665 EQ 01/09/2013 EX 724 TU 739?
Current Score: 03/27/2013 682 EQ 01
Goal Score: 850 all three FICO scores, 900 Vantage score, max insurance scores, etc.


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Valued Contributor
Posts: 1,294
Registered: ‎09-14-2012
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Re: How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

Really the only way to avoid paying interest is a) pay cash, b) finance at 0%.

 

Since the interest is calculated on outstanding balance you'll pay interest unless your balance is $0.

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Valued Member
Posts: 47
Registered: ‎03-17-2013
0

Re: How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

[ Edited ]

Thanks. But how is interest calculated for a loan?

 

For example if I get a $15000 loan, for 24 months with a 20% APR. How much extra would I have to pay back?

 

Edit: I would guess $6000 more since 15000x.20 is 3000. The double 3000 is 6000. But I not sure.



Starting Score: 03/17/2013 665 EQ 01/09/2013 EX 724 TU 739?
Current Score: 03/27/2013 682 EQ 01
Goal Score: 850 all three FICO scores, 900 Vantage score, max insurance scores, etc.


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Posts: 6,877
Registered: ‎03-06-2010
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Re: How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

[ Edited ]

Using your figures the monthly payment would be $763.44 per month. The total interest paid is $3,322.49 assuming that the lender is using a simple interest loan. This also assumes you pay on time every time and there is not even one day late (adds interest plus late fee).

 

However, in your example you are more likely to get a subprime type loan that is front end loaded with interest - thereby increasing the total interest on the transaction. In the old days they called those loans "rule of 78's" - now they refer to those subprime loans by different names (same concept, different names). One of those names: "add on interest". What they do is put all the interest for the entire period at the front and you don't payoff any principal until the total interest is paid. It has the effect of actually costing you more.

 

Sounds better than rule of 78's, but it means the same thing to you.

 

BTW, I just put your figures in a bankrate.com calculator to come up with the total interest and the monthly payment.

 

Whenever you borrow money - the interest is part of the cost of borrowing. There are other costs too (closing costs or fees) that increase the cost of the money.

 

At your age and stage of life, get a beater for cash and save up until you have enough to buy a better beater. Do that until you can buy a vehicle on payments without the payment taking such a huge bite of your income.

 

 

Valued Member
Posts: 47
Registered: ‎03-17-2013
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Re: How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

Thanks guys.



Starting Score: 03/17/2013 665 EQ 01/09/2013 EX 724 TU 739?
Current Score: 03/27/2013 682 EQ 01
Goal Score: 850 all three FICO scores, 900 Vantage score, max insurance scores, etc.


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Valued Contributor
Posts: 3,099
Registered: ‎10-02-2012
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Re: How is loan interest calculated? Also what is the best loan for a used car? Any car buying tips?

Interest is always based on the current balance.

 

So, at the start of the loan you will be paying more because you owe more.

 

So, in your 15k example. You will be paying 20% interest on the $15k balance. Once you get the loan paid down you will be paying less.

 

You can reduce interest charges by paying extra.

 

Anything above your payment can be directed towards principle, thus reducing your interest charge because you owe less.

 

My advice is to save up a large down payment. Buy a vehicle that is still covered by the manufacture warranty, and do not buy an extended warranty.

 

Compare your vehicle options and get insurance quotes. You may be surprised what you find. Sometimes nicer newer cars are cheaper to insure.

 

I am 21 and live within city limits. My vehicle is a 2013 and I pay around $100 per month for very good full coverage. $500+ is insane. My rates weren't even that high when I was 18.

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