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Financing a Car? Learn What Your Monthly Car Loan Payment Should be Using This Car Loan Calculator - YouTube
Channel: Financial Intelligence
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Hello and welcome to financial intelligence.
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In this video, I want to share some tools
with you to help you know if you are paying
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too much for your car loans.
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I was inspired by a comment from a viewer
who mentioned that he paid too much for his
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used car because the dealership signed him
up for a very high interest rate loan.
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So, I decided to create this video to help
folk know how much their car loans should
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cost.
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I recommend watching this video to the end
and using the tools I share with you.
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You can literally save thousands of dollars
by using these free tools.
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You will not regret it.
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In this video, first, I'm going to talk about
the five primary factors that determine how
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much your monthly payments should be.
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Then, I am going to share with you the free
online tools you can use to easily calculate
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how much you should expect to pay for your
new car.
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#1 Car price:
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The number driving your monthly car loan payments
is going to be the price you pay after negotiation.
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If you buy a more expensive car obviously
your loan payments are going to be higher.
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A general rule of thumb is that your total
car monthly car payment plus the insurance
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you end up paying should not be more than
10% of your monthly income.
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#2 Trade-in and down payment:
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The second key factor is your down payment
or the trade-in value of your old car.
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Having a large down payment or a car with
higher trade-in value reduces the amount of
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loan that you are going to need to pay for
your new car.
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A large down payment also shows the lender
that you are in a financially healthy position
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and lowers the interest rate that they are
willing to offer you.
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A good rule of thumb is to put 20% down when
buying a car.
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#3 Interest rate:
Interest rates you will pay on your loan is
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super critical.
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This is where many people get taken advantage
of because they have no idea what the average
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car loan interest rate is for someone in their
financial situation.
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Your interest rates will depend on your credit
score, the duration of your loan, whether
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you buy a new car or a used one and the amount
of down payment you are willing to make.
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My main point is that interest rate calculations
tend to be a bit confusing and that is why
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many car dealerships are able to take advantage
of people.
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The best way to avoid paying too much on your
car loan is to use free online tools such
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as Experian to learn about the range of interest
rates you should expect.
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These tools will help you to get a better
understanding of what interest rates are for
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folks with similar financial profile as yours.
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I will add the link to the Experian online
tool in the description box so that you can
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easily access them.
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#4 Number of months:
The duration of the loan or the loan term
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is the number of months during which you will
be making the car payments.
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Most people choose longer term loans to spread
the car payments over a longer period of time
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to reduce the monthly payments.
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However, you should know that lenders charge
higher interest rates when you choose to go
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with longer term loans.
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What ends up happening is that your car will
be more expensive because of the higher interest
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charges you will be paying when you opt for
a longer term loan.
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The rule of thumb is to not exceed four years
of 48 months when it comes to the duration
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of your car loan.
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Free Tools to Estimate Your Auto Loan Payments:
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In this section of the video, I will share
with you a free tool that you can use to enter
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the information I talked about to see how
much your monthly payments should be.
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I really like the tool introduced by nerdwallet.com.
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I will leave the link to this tool in the
description box below.
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When you head to this page, you will see a
section that allows you to estimate interest
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rates you should expect to be paying based
on your credit score and the type of car you
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are buying, in other words a used car versus
a new car.
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If you do not know your credit score, you
can use other free tools such as Credit Karma
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to see what yours is.
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I will add the link to Credit Karma鈥檚 tool
in the description box below as well.
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Once you learn what the average interest rate
you should be paying, you will head down to
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the section below the page where you will
see their Car payment calculator.
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Here you enter the following information:
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#1 Car price:
In this field, put in the price you think
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you鈥檒l pay for the car after negotiations.
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#2 Trade-in and down payment: Enter the total
amount of cash you are putting toward your
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purchase.
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This amount is your down payment plus the
trade-in value of your existing vehicle.
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#3 Interest rate: You can enter the interest
rate from the table I showed you or estimate
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your rate based on your credit score using
the dropdown menu at the top of the calculator.
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# Number of months: Enter the loan term, or
how long you plan to take to pay off the loan.
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You will get an estimate of your monthly car
loan payments after entering this information.
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I would encourage you to install their app
on your phone and take it with you to the
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dealership.
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Do your due diligence using these free online
tools before signing any contract to make
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sure that you are not being taken advantage
of.
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