How Car Loan Interest Works (The Truth)
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- čas přidán 1. 07. 2019
- This video will explain exactly how car loan interest works.
Check out LightStream auto loans: bit.ly/auto_loans_ls
(I may be compensated by LightStream through this link.)
Car loan interest is not rocket science, but you do need to understand how it works in order to save yourself from going upside down in every car you own. The math works the same for every fixed installment loan, so pay attention and you’ll know how to easily do the math yourself. I'll explain everything I know about auto loan interest and financing, so you can confidently run the numbers yourself whenever you’re looking for some guidance on what you can really afford.
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#honestfinance #carloans
Getting car loans from outside banks or credit unions are the best route. I rarely come across a dealer that gives good rates.
What other loans are there ??
From outside banks? You mean from outside dealers?
I feel like things like this should be taught to students in high school. I've been killed on a car loan from not understanding this principle! Thank you!!
Yes it should be taught . You’re welcome :)
The real owners of this country desire a slave class and that's where the masses come into play.
Agreed. Save people from hurting themselves financially👍🏽
We learned about it when I was in high school in my special education class but then our teacher hammered home if we couldn't buy it out right we probably shouldn't do it
I am a High School Math Teacher and I am here to use this in my class
Thanks for all your videos. I've sent to some people and this has been a big help
Much appreciated! Thank you for the help!
well Jason i def appreciate your videos and educating us very cool ...idk when i will take the plunge but i will make sure i do my homework thanks again.
You did such a wonderful job explaining this I appreciate you sooo much . Many eternal Blessings to you 🙏🏻😊
Thank you very much :)
Awesome video...I finally understand. Thanks for keeping it simple.
You’re very welcome
You are making sense 😇thank you so💙 much and I was looking for a calculator for estimating a car loan thank you 💛 you made my day 🙂
I reside in florida and english is my 3rd language. Looking to buy my first car soon. Your videos are so valuable, yet so simple to understand. Thank you
Jason, your video is off the chain good. Easy to understand and follow.
Thank you
Great interaction methods with your viewers. Great information. You are doing the job for the school system.
This info is super important for everyone and especially the younger crowd
This video was so helpful. Thank you
You’re very welcome :)
Bless u, Bro! I’m definitely going to try to find car that’s clean, but reliable
very informative video. I appreciate it man. Thank you!!
You’re very welcome
This is amazing explanation honestly! Wow thanks and much appreciated
Hey thanks! Glad it helped
Thanks for the simple explanation.
You’re welcome!
very interesting and eye opening
thank you for sharing, this is very helpful
You’re very welcome :)
you are good man...tnx for the vid
You’re welcome
Nice. This video helped me greatly. Thanks a lot.
You’re welcome
Thanks for watching the video. Feel free to comment if you’ve got any questions :)
Watch more car buying videos: czcams.com/video/rwOcAHTH4Os/video.html
Thank you for providing this valuable content. You are a smart man.
Thank you!! I’m not that smart :)
Totally disagree with you stating that your car is a depreciating asset. Oxymoron statement. Your vehicle (unless it's a classic) drains you of your money. An asset puts money in your pocket. A liability takes money out of your pocket. So, your depreciating vehicle is a depreciating liability. Since, your losing money via down payment, monthly payments, insurance, maintenance(tires, oil changes, filters, brake pads, ect...), title, tags, registration and petrol cost. All taking money out of your pocket. It's a depreciating liability!
@@HonestFinance NEVER doubt yourself.
*When I step into that dealership 👏 with 👏 that 👏 pre-approved financing 👏 they know they can't scam me!*
They can still scam with a way high msrp price on a vehicle.
Same here! Lol 🤣🤣🤣🤣. Her feelings were soo hurt
Alex Ortiz get a buyers order first and then present your approved financing
5:40 best painters
Pay cash. That is the only way.
Thanks for the help
You’re welcome. Thanks for watching
Your awesome.Thank you
This video is very helpful for me … I’m going to refinance down to a 2% interest and bring it down to a 60 month from 72 to pay it down quicker so I end up paying less interest in the long run thanks so much
Great video. Always get a loan through your own bank!!! When I was in the auto industry the lender would approve let's say 4% we would lock you in at say 6% to make a profit. All dealers do this unless you deal them down to the base.
Thanks for the honesty
Brooo!!!! Where was this at earlier!! Lol you definitely broke it down to where am idiot like me Can understand it !! Thank you so much man !! Do you have any videos about trade ins ??
Hey thanks! This video might help a little czcams.com/video/NfPIT3b9lNI/video.html
wow a amazing men thank for the infromation
GREAT information
Thank you
Thank you brother
You’re welcome
Thank you very much for letting us know of what App that can calculate car loans or other loans. But I am looking for a video that can explain the step by step calculation of car loan and interest rate.
Thank you so much🙏 Can you please explain about car leases and lease to buy?
Good video! Question - Is the interest typically calculated monthly or daily for car loans? Do you get a benefit by paying a few days early each month or it doesnt matter?
It’s annual interest, but you pay it every month. It doesn’t matter if you pay early
Nice page, I’ll make sure to comment on your videos, like them, and hit the subscribe plus notification bell 👍🏾
You awesome man!
Hey thanks :)
I understand, Thank you!
Thank you for watching the video!
You're welcome😁
You are amazing! Love the way you explain everything. Thanks for your help. I have a car loan with 5,99% interest rate, monthly payment is 429 but I pay 500 to get rid of it soon. Dont know if it is worth it or not, but the way I think is, if I can get 1 or 2 points down, and I keep paying just the 500, then it is going to be even more extra money to the principal, so I bet that will really help me to finish paying soon. What you think? Do they take that interest rate to make it lower or it is only for like over 10% rates... sorry for my english. Hope you understand. Thanks again. God bless you.
You could probably get a 4% right now, but I’d only do it if you still owe a lot on your car. And as long as your credit’s good, it’ll be easy to refi a 5.99%
Thanks for watching my videos :)
Thank you
You’re welcome. Thanks for watching the video :)
Can you make a video about financing a house please?
thank u so much
You’re welcome
man you are good I am in a bad loan now ( so I will ) pay two payments a monthly to get it paid fast
Does timing of monthly payments (1st or 15th of the month) have financial impacts on the term of a loan? If so, what is the best advice one should utilize?
Your schedule is set for monthly so it won’t make a difference unless you pay half your payment twice per month. Just pay extra as often as you can and that’ll help the most
Thank you just got a new job and needed this .
You’re welcome!
Great content Jason. Say if you agreed to a 5-year plan at 4.31% APR and you want to pay off the loan in 2-2.5 years, can the lender still charge you a fee/penalize you for paying off your loan too early? Does that happen often to other people who try to finance?
It can happen , but it’s rare these days. Most lenders don’t charge early pay off penalties
Most states allow dealers to mark up your interest rate by 2.5%. Pay cash, and you'll never get ripped off on the rate.
Can you explain simple interest loans
I am a "Leasing Person" and have been since 1990 because of leasing do you calculate same as buying?
Hey thank you for this! I am teaching HS Consumer Math and this was definitely an asset to our unit on financing cars. I also love that you used the phone app because my kiddos are more likely to be doing that too. (And by the way you're not stupid! XD)
I’m glad it helped.
2017 Toyota 4runner TRD Off-Road Premium w/ 30k mi for $35,995. No-haggle price. Out the door = $39,600. Good deal or no? Thanks in advance.
you did the exact amount and interest on the loan got.
Thank you!!!! Bought my first car at 23 yo😢 I got ripped off. But after watching your videos I am going to refinance to👏 mo 👏 rrow 👏!!!! Ugh I'm gonna feel so mart talking to them with my new finance vocabulary
LMAO SAME!! im going go back and fix this shit LOL. i just got rav4 2 days. ago
What happened?
Great work, FYI "Instalment" should be "Installment" :)
It happens 🤷♂️ Thanks for noticing
If you round up a month, the extra money wont always fo to principle. You have to specify it always
You’re right. Make sure to specify
Will it hurt my credit score if I refinance my car currently at .18% APR??
Hru sir? I got screwed bigtime on my loan and now I have to make a huge decision. Hopefully I can get some advice from you because your contents are more credible that a lot on advisers out there. In June 2019 I got a 25k loan from Santander for a used car w/ 23.99% interest rate because, 1. it’s my 1st loan ever, 2. I only had 1 year credit history, 3. I had 2 derogatory accounts(hospital bills) on my credit, plus I didn’t have a co-signer. Fast forward to this year June...I remove the derogatory accounts off my Credit, my credit card limits has increased because I am on time with all my payments. I need a suv because me and my gf is expecting a a child and I need more space. Obviously I am upside down on my loan. I am currently 680 on my fico score and the co-signer I am getting now has a 700 on their credit score. Should I refinance and try to get a better interest rate before trading in my car, or just go ahead and trade in?
Don’t bother refinancing if you don’t plan on keeping the car for much longer and use your local credit unions for the best rates
Honest Finance thank you. Appreciate your advice brother.
Is it possible to refinance a car loan with a fixed rate?
Does it matter what interest rate/term length we get if we plan on paying off within 1-2 years?
Yes because you pay most the interest in the beginning. If you really want to do the right thing, Finance a 24 month loan and pay it off as fast as you can
(Need your help) I put 16,900 down on a 2018 gmc Sierra slt crew cab z71 and the price was 40,000+about 4,000 for bumper to bumper warranty and tire and rim warranty using ally financing back in January 2018 my credit has went up from 570 to 670 my arp then was 12% after the deal was done I put another 5,000 payment to the 2nd payment and always pay a little more on each payment. It's been over a year now should I refinance with my credit getting higher or when is it best to refinance. It's July 20 2018 and my next payment isn't till December 2018 but still making the monthly payments to stay ahead.
I would refinance as soon as you can becuase your credit is probably better now and rates are about 4% which will save you a ton of money. check with your local credit unions or use lightstream that i linked to in the video.
What about a loan of 18000 at 10.24 interest rate for 5yrs ? Good, Bad, or Average and also how much interest will i be charged if I differed 2 payments
You can get rates for about 3% right now, so 10% is a bit high
Also be careful with the finance charge that could be very high
Very true :)
My bank has already approved me for a car loan of 21k
APR: 5.19%
Term: 60 months
I am 25 yrs old never bought a car before as far as through dealership I’m skeptical about it but is time for a new car. I also have a great credit score of 756. Do you think this is a good deal? Or should I try credit union or maybe even check through the dealer? But like I said I’m very skeptical about dealers lol I know they not always but most times they try to get you. Please answer I’ll appreciate it
I’d try your local credit unions. You might end up w 3-4%
Honest Finance thanks for replying
Please check up with ya credit union & compare the rates
5.19% APR sounds pretty high for your credit score I feel like. I was at the dealer the other day, I verbally gave them 711 credit score and they threw in 2.5% APR for 60 months. I wasn't seriously buying at the time (still on the researching stage), but was just getting my foot in the water. But always try to reach out to your banks or credit unions first before receiving the dealer option.
I’m starting in October to do double payments a month on my car $1713
I’m going to even get a second job to try and pay off 34k in a year in a half. Wish me luck
Good luck! Great job paying it off early
After paying monthly payment every time I pay extra $600. But when next statement comes they deduct some amount on principal and some on interest. Why is that ? Why all $600 is not deducted on principal as bank do for the process of mortgage loan. Can someone explain this method?
These compound interest rates are murder. I prefer to use savings clubs to finance a vehicle. No interest, and you can save a lot of money long term. Also, you build equity on the vehicle much faster and avoid being underwater.
Is the interest rate negotiable? Can I negotiate with the dealer ? Please advise I am going to the dealership tomorrow. Thanks
It can be. Just make sure it’s competitive w local credit union rates
I have a question does it really matter how young we are… I’m 20 will anything change price wise for anything compared to someone that’s 30 I have good to very good credit does age really do anything cause that’s what someone told me
Age doesn’t matter, but credit history can be affected if you haven’t had a variety of loans
what is rough interest of light stream auto loan they give?
Probably 4%
If I pay the principal on the prior month does that cancel the interest?
No. Paying extra will save on interest, but interest won’t stop until the entire loan is paid off
I just signed someone on a 65 month loan.... thats inncorect
First Car it got had a Variable Rate on a 72 month Term. Luckily i was able to pay off my Loan in Full Last Week in less than 3 Years! Never again will i get Screwed over again!
Me too. Never again!
Hi. I have a very high interest rate bought a brand new car 🚘 in 2016 ARP is 15% interest rate I now owe about 12,000 my monthly payment is $547.00 a month. Please give me your opinion on what is best should I refianced or get a personal lone and pay it off?
Auto loans are always cheaper than personal loans, so keep that in mind. Go to your local credit unions and refinance to a better rate as soon as you can
Please just save and use cash, Car payments are a drag on your financial future.
There it is. Buy what you can afford. If you have to finance, especially long term, you're probably looking at the wrong car. But our culture is so based on "I want it now" that we're drowning in installment debt.
@@evanwindom3265 Your financial future is better off if you take a low interest loan and invest that large some in stocks
@@ItachiUchiha-ny6di If you're willing to ignore risk, perhaps. But playing the spread like that requires a pretty high risk tolerance. Example: You invest the cash in stocks and take out a loan for a car. Something happens -- like maybe a pandemic -- and you're suddenly out of a job. But you still have a car payment. You end up selling the stock (potentially at a pandemic-induced loss) to make ends meet. Yeah, I know pandemics are rare, but I used that example to make a point. 100% of car repos are on cars with loans, right?
I got a good credit score and a paystub for my car loan
I already made this mistake cause I brought my first car at 19 I was too ignorant and wanted a car
It happens 🤷♂️
Hey I have a question what if my amounts financed is 26k and the “total payments” is 44k if i pay more a month will i avoid paying that much interest? My apr 17% 🤦🏽♂️ also paying extra going to principal? So i can pay of the loan early to avoid the interest
Ya the total payment will go down if you pay extra towards balance/principle. And I’d 100% refinance as soon as you can through your local credit union. 17% is very high
@@HonestFinance thank you
How do I do auto payments to include the extra payment for the principle payment too? Meaning I have a Cadillac Escalade I'm paying every month and my payment is $860 a month with a 12.3-% interest rate and I want to pay the second payment of $443. How do I make sure that 443.00 extra payment is applied to the principle only with automatic payments?
You’ll need to call and ask your lender if it’s possible to do auto pay with an extra payment every month. You might have to do it manually
@@HonestFinance ok, thx for replying. Much gratitude and I will
On credit karma, I have a credit score of 749 applied for light stream because I currently have a 18% Interest rate and wanted to refinance. But I actually got denied so just wanted to see if there’s another company I could go to.
Sorry. 750 is a really good score, but they’ll look at income/job status stuff too. Try your local credit unions. That’s your best bet. Get out of the 18% as soon as you can
Honest Finance thank you so much!
Why does some of the money are going towards the interest and other is going towards the principal? I thought you pay off the principal first and then the interest. Please clear my doubt. Thanks
You always pay the most interest (and little principle) at the beginning of the loan. It’ll slowly go the other direction, but they cost the most at the beginning
What do you drive? An 84' Chevette? Sub 30k is barely enough to buy a rusty truck.
So can I get offers from different credit unions without getting hard checked everytime?
Not really , but the credit companies expect you to check a few when you’re looking for a car
How do you get a low car loan interest rate for example 3%?
Good credit and your local credit union. They’ll have competitive rates
can you confirm if i understand correct if my loan is $5000 @ 3.5 interest for 36 months.....i would pay $274 (just interest per year x 3 is $822 - is 822 is total interest i will pay for whole term
$274 is total interest over the 3 years. So $274 total
Honest Finance ok. So the loan will get lower each year. But total at end of year will be $274
The loan will go down over time and so will the interest. Each month you’ll pay less in interest, so the first year will be more expensive than the third. $274 is the total interest for the entire 3 years
I've been making a 150 payment when my monthly payment is 120..well they've just been putting the extra 30 in interest
I am confused. Awesome. I tried to buy a 2020 green Tacoma pro. After accessories taxes is was 68k plus 6.44% finance interest. Pay ment was $464 bi weekly for 182 payments(7years). That's $ 464 × 182 = $84k. This a 20% interest not 6.44%. Is it 6.44% annual?
It’s just because 6.44% over all that time equals about 20% in interest charges. Put the numbers in a loan calculator and you’ll see what I mean
Next time if you add those numbers up, lower the cost of the truck to what you’re paying in interest!! If they won’t, then walk away
he said ...they Do Do that...lol 4:06
Can some tell me how much interest rate I’ll be paying!! 56.669 original! 17.99 interest rate! 1669 payment every month!! With 48 months
What do you mean by saying lenders will use our extra payments and put in cash account if we don’t specify them about going towards principle balance?
Sometimes your extra money won’t go towards principle and it’ll just sit in an account. It’s super dirty
Honest Finance sit in what account?
Isn’t it going to be applied to our debt?
You mean they will use it for their own investment? Like a fraud?
Not a fraud. Just a holding account of their own. It’s common and some lenders do it
Honest Finance I still don’t get it, if the extra money I pay doesn’t go to cover my balance, then where does it go?
@@HonestFinance would it be the simple interest loans where most of your payment goes toward interest not principal. Explain that...
2:58
I ended up paying over 10k in interest fees by not understanding APR. Please, do your research and understand numbers. Also, it's ALWAYS better to get pre approved by a bank/credit union. Dealership financial should be last resort and at most APR should be 5%. Otherwise just walk out.
I agree
I have a $8500 dollars balance on my car loan and I still make my make my payment $425 dollars per month.. But I have noticed money kept adding up on the principal after they have charged me with interest.. Now my balance is $ 8518dollars.. Why is that?
Sometimes they’ll add on your interest payment early, but it’s not something to be too concerned with.
I WISHED!!!!
I watched this before I went to the dealer ship. I NEED HELP !!!!
So I bought a car off the the lot. With basically no credit. Signing papers not knowing what I’m signing. Needed a car badly.
Anyways so the car was $15k
I dropped a down payment of $2,500
A bank loaned me $12k and some change I believe .
For 21 months straight haven’t missed one payment. Monthly payments are 353 while my interest rate is 24.6%.
If I drop another $4,000 on top of my normal monthly payment which is 353 on the the 15th of this month, (15th of every month is when the car payment is due)
Would that help my interest rate go lower and would that pay off the car faster?
THANK YOU !! You are a lot of help. I never knew none of this stuff.
It’ll help pay off the car faster and you’ll save you money on interest, but it won’t change your interest rate. I’d also go into your local credit union and refinance to a better rate because 24% is very, very high
Hope that helps ;)
@@HonestFinance THANK YOU !!!!! But I have a few more questions. So the quicker I pay the car off, the less interest I have to pay?
Thank you again !!!!!
@@TheBlackDavidDobrik yes that is correct
@@HonestFinance Great advice. Spot on.
So is this simple or compound intrest?..can u explain why also..thanks
It’s simple interest because it’s called an installment loan. You pay it off over time w a fixed interest rate and payment
@@HonestFinance ok..can u give me an example of a compound interest loan and explain the difference..thank u👍
Compound interest happens when an account grows each year and compounds. So $1000 at 10% would be $1100 in one year, then it’d grow to $1,210 on year 2 because of compound int starting to work
@@HonestFinance ok..got it..my question is there any type of loan that uses compound interest that the average person may come across that he/she should be aware of?..such as a home mortgage, HELOC, etc...or do they all use simple interest 🤔
High interest loans and credit cards would be my only concern . What you owe can compound if you don’t pay it off fast enough on high interest loans
The key takeaway for people that understand this is that you MUST hold your car loan for as long as possible, for the first couple years you will be paying 30-60% of your payment to interest which is ridiculously depressing and why car loans are so profitable for lenders, its truly un real.
My first car loan had a 28% interest rate.
Oh boy!! I hope you refinanced quickly
Jesus. I hope you have it back within the month
My car load is 11327 and my monthly payment is 314 for 5 years is that good or bad
How many payments have you already made?
If you're paying $314 on $11,327 for 60 months, your interest rate is HUGE - somewhere around 22%. Your total interest paid will amount to SIXTY percent of the price of the car. Unless you had bad credit and were super tough to get qualified, you're getting ripped off big time. If you've made some payments, you may want to think about a re-fi to a lower rate if you can. I'm sorry you were hit like that.
I sound like an old man but, I have a car that’s $3,000 it’s ugly and not perfect but it works and I’m saving a ton of money
If it works it works
Jared Diaz life is too short for that
The first few years most of the payment goes to interest. Not worth buying a brand new car.
Very true
Especially when that's the time the car's value is dropping fastest. It's not quite as bad if you intend to keep the car long term so the depreciation levels out a little.
🙌🏽🙌🏽🙌🏽
Here's something to think about. In his example, he uses 7% interest. If you want to get a good sense of how much money you're actually losing in interest, divide the total interest paid by the loan amount. In this case, that's $4,700 / 25,000 = 18%!!! If you extend the term - which he is clearly saying NOT to do (mega props to him) -- that percentage jumps up to almost 27%. Holy rip-offs, Batman.
10,000$ car amount at 280$ payments for 60 months at 9% is that bad?
9% is pretty high right now. If your credit is optimal, you should be able to get a about 4% currently