What Is Car Loan Amortization?
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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).
Auto Loan Amortization Calculation
How a Car Loan Amortization Schedule Works
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
Example Car Loan Amortization Schedule
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, since 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. The loans can extend for a very long period, producing a 72-month schedule.
4 Things to Do to Improve Your Amortization Schedule
1. Getting More Favorable Rates
2. Larger Down Payment
3. Less Expensive Vehicle
4. Making Extra Payments
Refinancing Can Affect Car Loan Amortization
Frequently Asked Questions
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