What Is Car Loan Amortization?
Editor’s note: At Lantern, we strive to help you make financial decisions with confidence. To do this, we occasionally feature content that includes information about our partners and their products or services. We do not provide, endorse, or guarantee any third-party product, service, information or recommendations—and our opinions are our own.
Share this article:
How Car Loan Amortization Works
Principal. This represents the amount of money you borrowed to purchase the vehicle. Interest. This is the cost the lender charges you for financing the vehicle with a loan. Fees. This includes any fees that are factored into your loan's annual percentage rate (APR).
How Does an Amortization Schedule for Car Loans Work?
The total number of payments you'll make on the loan The beginning loan balance for the month The ending loan balance for the month after your payment is applied How much of the payment goes toward interest How much of the payment goes toward fees, if applicable How much of the payment goes toward the loan principal
What Factors Affect Auto Loan Amortization?
Down payment. The more you put down on an auto loan, the less you'll have to finance and the lower your monthly payments may be. Trade-in value. Offering a vehicle for trade-in could also reduce the amount you have to finance and thus lower your payments. Fees and taxes. If you have to pay taxes, title fees, and other costs at signing that are rolled into the loan, that can affect the amount that's amortized. Interest rate. Your auto loan's interest rate also matters, sincer a higher rate means more interest paid in total over the life of the loan. Loan term. The longer your loan term, the more payments there are on your amortization schedule and the more interest you'll pay altogether, even though what you pay per month may be less than you’d pay with a shorter term.
What Can You Do to Affect Your Car Loan Amortization Schedule?
Improving your credit score to qualify for more favorable auto loan rates Offering a larger down payment to reduce the amount you need to finance Choosing a shorter loan term (which can also mean making a larger monthly payment) Adjusting your budget to purchase a less expensive vehicle Making extra payments toward the loan's principal, beyond those dictated by the amortization schedule
Refinancing Can Affect Car Loan Amortization
About the Author
Share this article: