When you take out any kind of loan, it is important to realize that you will ultimately be paying more than the initial loan amount back to the lender over the course of the repayment term on the loan itself. This is due to the fact that almost all loans have a set interest rate; this is an annual percentage that the of the total loan principal balance that can be charged and is essentially how lenders make their money in the first place. Only in rare occasions may getting a car loan be approved with a 0% interest rate, such as when an applicant has an excellent credit score. In these cases, the bank or lender already knows that it is going to make its money back on that particular loan.

Figuring Out Costs

Of course, for the majority of people who do not have a perfect credit score, getting approved for a loan means accepting the future interest payments that will come along with it. With a car loan, interest rates tend to hover between about 2% and 6%, and the interest rate you are approved for on your particular loan can vary based on a number of factors such as:

• Your credit history and credit score
• Your employment status and income
• Your age and credit-worthiness

What to Factor In

When determining how much a car loan will ultimately cost you, it is wise to consider not only your interest rate, but to calculate specifically how much you will pay in interest over the term of the loan as well. Furthermore, you should be sure to subtract any down payment you may be making on the car before you determine how much you will need to have financed. From there you should be able to work out an estimated monthly payment on your best car loan deal, which will help you to ultimately determine which car is right for you and which loan option will be your best bet in the long run. Taking the time to make these calculations can save you a lot of money and hassle down the road.