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Car loans

BrodyBrody The WatchThe First ShoreRegistered User regular
Over the past couple of weeks my wife and I have been looking at getting a bit of a bigger car, and a couple of times have asked to see what the numbers looked like, and the first couple times my eyes just glossed over, but this last time I managed to semi engage my brain, and I have some questions.

The numbers they gave me came out to $14,208 financed, with a 5.99% rate over 72 months. They said the monthly payments would be $248 a month.
$248*72= $17,856
$14,208*1.0599= $15,059.06
$14,208*(1+.0599)^6= $20,142.91

The result of the monthly payments doesn't equal a flat 5.99% increase, and doesn't equal the principle compounded yearly either. Also, no one in their office understood the question "How do they calculate the monthly payments".

So, can anyone explain know how they get from $14,208 to $17,856?

"I will write your name in the ruin of them. I will paint you across history in the color of their blood."

The Monster Baru Cormorant - Seth Dickinson

Steam: Korvalain

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    dispatch.odispatch.o Registered User regular
    edited April 2018
    edit: nm

    dispatch.o on
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    PowerpuppiesPowerpuppies drinking coffee in the mountain cabinRegistered User regular
    Brody wrote: »
    Over the past couple of weeks my wife and I have been looking at getting a bit of a bigger car, and a couple of times have asked to see what the numbers looked like, and the first couple times my eyes just glossed over, but this last time I managed to semi engage my brain, and I have some questions.

    The numbers they gave me came out to $14,208 financed, with a 5.99% rate over 72 months. They said the monthly payments would be $248 a month.
    $248*72= $17,856
    $14,208*1.0599= $15,059.06
    $14,208*(1+.0599)^6= $20,142.91

    The result of the monthly payments doesn't equal a flat 5.99% increase, and doesn't equal the principle compounded yearly either. Also, no one in their office understood the question "How do they calculate the monthly payments".

    So, can anyone explain know how they get from $14,208 to $17,856?

    maybe your third number - 5 years interest on 12*248 - 4 years interest on 12*248 - 3 years interest on 12*248 and so on?

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    ElvenshaeElvenshae Registered User regular
    edited April 2018
    When you do financing calculations like this, the objective is a flat monthly charge. In the beginning, you're paying mostly interest, and at the end, you're paying mostly principal (the actual cost of the car), because your interest is calculated only on the outstanding principal value of the loan, which changes over time. Thus, $14,208 * (1.0599)^6 doesn't work.

    Assuming monthly payments for 72 months and that your monthly payment is $248 ... then it looks like you're financing a grand total of $15,030 (or so).

    So, where, exactly, is the $14,208 coming from? Because if that's the price of the car post-downpayment, and your actual interest rate is 5.99%, then your monthly payment should only be $235.

    If you're not comfortable posting more details here, you can PM me some details and I can help out more.

    EDIT: They aren't charging you any financing charges, are they?

    Also, ~6% interest on a 6-year car loan is kinda fucky; how's your credit? Like, a decent credit union would be charging about half that at the moment, based on the three I'm a member of.

    EDIT2: Is this an older used car you're financing?

    Elvenshae on
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    BrodyBrody The Watch The First ShoreRegistered User regular
    edited April 2018
    The $14,208 would have been the final financed amount after taxes and GAP insurance, which is why I was confused. They wouldn't let me keep any of the paper work since I didn't actually buy anything, but I typed it into my phone's calculator about 20 times trying to get $14,208 to come to $248 payments.

    Edit: 2011, and it was before credit checks, so they were showing me ballpark interest rates/loan lengths.

    Brody on
    "I will write your name in the ruin of them. I will paint you across history in the color of their blood."

    The Monster Baru Cormorant - Seth Dickinson

    Steam: Korvalain
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    tinwhiskerstinwhiskers Registered User regular
    Brody wrote: »
    Over the past couple of weeks my wife and I have been looking at getting a bit of a bigger car, and a couple of times have asked to see what the numbers looked like, and the first couple times my eyes just glossed over, but this last time I managed to semi engage my brain, and I have some questions.

    The numbers they gave me came out to $14,208 financed, with a 5.99% rate over 72 months. They said the monthly payments would be $248 a month.
    $248*72= $17,856
    $14,208*1.0599= $15,059.06
    $14,208*(1+.0599)^6= $20,142.91

    The result of the monthly payments doesn't equal a flat 5.99% increase, and doesn't equal the principle compounded yearly either. Also, no one in their office understood the question "How do they calculate the monthly payments".

    So, can anyone explain know how they get from $14,208 to $17,856?

    Car loans are simple interest - you don't pay interest on the interest- and the key word you are looking for is amortized.

    You only pay interest on the outstanding principle. Your monthly rate is effectively 0.486%

    So your first month's payment is:

    .00486*14208=69.05 in interest and the remaining 178.95 toward the principle

    The second month is .00486*(14208-178.95)=68.18 in interest and 179.81 toward the principle.

    Month three is .00486*(14208-178.95-179.81)= 67.31 in interest and 180.69 toward the principle.

    Etc Etc.

    this is a pretty good explaination
    https://www.ifsautoloans.com/car-loan-interest/

    Also, that rate you are paying is really not good. If your credit allows it, I'd look somewhere else, with a lower rate to get away from the 72 month term.

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    BrodyBrody The Watch The First ShoreRegistered User regular
    Yeah, I got that you paid the bank back faster than you pay the actual value owed on the car, I just wanted to see the equation they were using to get the payment's. Also maybe a little bit of general annoyance that there is a listed interest rate, an "effective" interest rate, and then the actual amount of interest you pay over the life of the loan.

    "I will write your name in the ruin of them. I will paint you across history in the color of their blood."

    The Monster Baru Cormorant - Seth Dickinson

    Steam: Korvalain
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    ThundyrkatzThundyrkatz Registered User regular
    edited April 2018
    Tinwiskers has the right of it, that article he linked is really good! You work down an amortization schedule so each month the formula stays the same but the inputs change. You can do it in excel with some pretty simple formulas. If you want to see the math it looks like this.. If you want to just plug in your numbers and see the amortization schedule you can look here for a simple table.

    Lastly you may want to read up on the difference between APR (Annual percentage rate or what is advertised) vs APY (Annual Percentage Yield or what you will be paying). You're not wrong that much of this is carefully designed to confuse you and get you to look just at the monthly payment and not look at what you will actually be paying in interest over the life of the loan.

    Thundyrkatz on
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    schussschuss Registered User regular
    Yeah, 6% is high unless you have crappy/new credit. Also on GAP - get it through your own car insurance and it'll be much cheaper than from the dealer.

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    BrodyBrody The Watch The First ShoreRegistered User regular
    Yeah, my credit score will allow for a way better rate, I just wanted to see how things kind of worked, so I asked them about numbers w/o letting them check my credit.

    "I will write your name in the ruin of them. I will paint you across history in the color of their blood."

    The Monster Baru Cormorant - Seth Dickinson

    Steam: Korvalain
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    m!ttensm!ttens he/himRegistered User regular
    A lot of banks and credit unions will give you your FICO score for free these days. You can try giving financing places your score or a ballpark range so they know whereabouts their rate offer will be. Also if you aren't a member of a credit union, consider joining one! They often have the best auto loan rates outside of specific auto manufacturer promotions (buy X car model and finance at Y%), though those are only available for new vehicles.

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    MugsleyMugsley DelawareRegistered User regular
    The last time we tried to buy a new car, the finance guy at the dealership said the best he could do was 6.00% (this was back in....2011?). Both our credit scores are around 800 (they fluctuate month to month).


    I laughed out the door.

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    DaimarDaimar A Million Feet Tall of Awesome Registered User regular
    Car dealerships are not very honest with you and will try to obscure the real costs by trying to get you to commit to a monthly payment which you can't really work back to the price and interest rate they give you. I ran the loan amount of $14,208 and 72 monthly payments of $248 through a program called TValue and it came out with a nominal annual rate of 7.839%.

    If you assume that the rate they gave you is accurate, then the amount of the loan you are financing works out to $14,968.46, so either they've lied about the rate they're charging or have added on some hidden charges, which is probably what has happened.

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    Iceman.USAFIceman.USAF Major East CoastRegistered User regular
    Brody wrote: »
    They wouldn't let me keep any of the paper work since I didn't actually buy anything,

    That'd be a big red flag to me.

    In a related note, your bank may be able to offer a better rate by going through them directly. Generally they can give you some "sample" terms without actually pulling your credit, so you know where about you sit.

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    badpoetbadpoet Registered User regular
    edited April 2018
    I always get preapproved through my credit union then let them see if they can beat that rate (or if incentives make up for the rate difference, meaning $1000 more off the car due to a manufacturers' incentive if you finance through them may be better than .25 percent difference).

    You can get pre-approved for up to X amount through you bank or credit union and see what rate they give. Then go into the dealer with that knowledge.

    Never, ever buy a car based off what the monthly payment will be. Instead, get the total price set (including tax, title, and license), then the trade in, then figure out financing. Don't let them 4-square you and don't answer them on what monthly payment you can afford. Instead, say I'll pay X dollars for this vehicle (have a reasonable figure for it, you can use TrueCar, Kelley Blue Book, or other online resources to find a reasonable price).

    Here's a good interest calculator for cars: http://www.calculator.net/auto-loan-calculator.html


    badpoet on
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