Interest rate for car loan question

[Zee]

if i'm financing for 60 months, and the principal balance is $18,661.38 with the interest rate being at 4.9%, how does the math work out?

I'm sorry but for some reason i can't figure this out and i'm feeling really blind here.


On the statement, Per month is $351.31:
How does principal = $276.37?
how does the interest rate = $74.94? what's the equation to get these numbers?

 

[Bullhonkie]

I've had a couple drinks here tonight so feel free to correct my math if something isn't right. Assuming it's a simple interest car loan:

Divide interest rate by days in a year to get daily rate:
4.9/365 = 0.013425%

Multiply principal by daily rate to find daily interest amount:
18661.38 * 0.013425% = 2.505226

Multiply daily interest by days in billing period (we'll use 30):
2.505226 * 30 = $75.15679 of interest accumulated in 30 days

Close enough to your $74.94. Difference probably due to rounding or the rate could have a hundreths digit (4.99% or something).

 

[rky60]

I've always wondered this also

 

[Viper GTS]

Amortization Schedule Powered by TValue ©1998-2004
Event Date Payment Interest Principal Balance
Loan 11-05-2004 18,661.38
1 12-05-2004 351.31 76.20 275.11 18,386.27
2004 Total 351.31 76.20 275.11

2 01-05-2005 351.31 75.08 276.23 18,110.04
3 02-05-2005 351.31 73.95 277.36 17,832.68
4 03-05-2005 351.31 72.82 278.49 17,554.19
5 04-05-2005 351.31 71.68 279.63 17,274.56
6 05-05-2005 351.31 70.54 280.77 16,993.79
7 06-05-2005 351.31 69.39 281.92 16,711.87
8 07-05-2005 351.31 68.24 283.07 16,428.80
9 08-05-2005 351.31 67.08 284.23 16,144.57
10 09-05-2005 351.31 65.92 285.39 15,859.18
11 10-05-2005 351.31 64.76 286.55 15,572.63
12 11-05-2005 351.31 63.59 287.72 15,284.91
13 12-05-2005 351.31 62.41 288.90 14,996.01
2005 Total 4,215.72 825.46 3,390.26

14 01-05-2006 351.31 61.23 290.08 14,705.93
15 02-05-2006 351.31 60.05 291.26 14,414.67
16 03-05-2006 351.31 58.86 292.45 14,122.22
17 04-05-2006 351.31 57.67 293.64 13,828.58
18 05-05-2006 351.31 56.47 294.84 13,533.74
19 06-05-2006 351.31 55.26 296.05 13,237.69
20 07-05-2006 351.31 54.05 297.26 12,940.43
21 08-05-2006 351.31 52.84 298.47 12,641.96
22 09-05-2006 351.31 51.62 299.69 12,342.27
23 10-05-2006 351.31 50.40 300.91 12,041.36
24 11-05-2006 351.31 49.17 302.14 11,739.22
25 12-05-2006 351.31 47.94 303.37 11,435.85
2006 Total 4,215.72 655.56 3,560.16

26 01-05-2007 351.31 46.70 304.61 11,131.24
27 02-05-2007 351.31 45.45 305.86 10,825.38
28 03-05-2007 351.31 44.20 307.11 10,518.27
29 04-05-2007 351.31 42.95 308.36 10,209.91
30 05-05-2007 351.31 41.69 309.62 9,900.29
31 06-05-2007 351.31 40.43 310.88 9,589.41
32 07-05-2007 351.31 39.16 312.15 9,277.26
33 08-05-2007 351.31 37.88 313.43 8,963.83
34 09-05-2007 351.31 36.60 314.71 8,649.12
35 10-05-2007 351.31 35.32 315.99 8,333.13
36 11-05-2007 351.31 34.03 317.28 8,015.85
37 12-05-2007 351.31 32.73 318.58 7,697.27
2007 Total 4,215.72 477.14 3,738.58

38 01-05-2008 351.31 31.43 319.88 7,377.39
39 02-05-2008 351.31 30.12 321.19 7,056.20
40 03-05-2008 351.31 28.81 322.50 6,733.70
41 04-05-2008 351.31 27.50 323.81 6,409.89
42 05-05-2008 351.31 26.17 325.14 6,084.75
43 06-05-2008 351.31 24.85 326.46 5,758.29
44 07-05-2008 351.31 23.51 327.80 5,430.49
45 08-05-2008 351.31 22.17 329.14 5,101.35
46 09-05-2008 351.31 20.83 330.48 4,770.87
47 10-05-2008 351.31 19.48 331.83 4,439.04
48 11-05-2008 351.31 18.13 333.18 4,105.86
49 12-05-2008 351.31 16.77 334.54 3,771.32
2008 Total 4,215.72 289.77 3,925.95

50 01-05-2009 351.31 15.40 335.91 3,435.41
51 02-05-2009 351.31 14.03 337.28 3,098.13
52 03-05-2009 351.31 12.65 338.66 2,759.47
53 04-05-2009 351.31 11.27 340.04 2,419.43
54 05-05-2009 351.31 9.88 341.43 2,078.00
55 06-05-2009 351.31 8.49 342.82 1,735.18
56 07-05-2009 351.31 7.09 344.22 1,390.96
57 08-05-2009 351.31 5.68 345.63 1,045.33
58 09-05-2009 351.31 4.27 347.04 698.29
59 10-05-2009 351.31 2.85 348.46 349.83
60 11-05-2009 351.26 1.43 349.83
2009 Total 3,864.36 93.04 3,771.32

Grand Total 21,078.55 2,417.17 18,661.38

Go here to run the numbers yourself. The amount going to principal/interest changes every month, this is how the numbers will look over the 5 year loan.

One more point, financing over 5 years is a really poor financial move. If you must finance, finance for 3 years or less. If you can't make the payments you're over spending.

Look at the Grand Total line, over that 5 year period you're spending over $2,400 on interest.

Viper GTS

 

[Bullhonkie]

Was about to recommend some of the calculators at bankrate.com if you wanted to crunch some numbers, but Viper GTS beat me to one.

 

[RossMAN]

Originally posted by: Bullhonkie
Was about to recommend some of the calculators at bankrate.com if you wanted to crunch some numbers, but Viper GTS beat me to one.

I was also going to recommend their financial calculators.

 

[spidey07]

umm, I thought with a car loan the principal/interest doesn't change? Its just straint interest on the total amount, divided by length of loan.

So an ammortization schedule would show the same principal/interest payment each month.

-edit- then again I ain't no finance guy. But some CPA told me it was silly to pay early on a car loan because the interest is still the same.

 

[Passions]

It depends on who is giving out the loan. Some amortize, some do simple interest loans.

 

[blakeatwork]

Most car loans (Particularly from Dealerships) capitalize the interest into the loan, so that paying early doesn't actually save you any money, and conversely cost them money.

**EDIT** Might be different in the states... but that's pretty much how it works in Canada

 

[RossMAN]

Originally posted by: spidey07
umm, I thought with a car loan the principal/interest doesn't change? Its just straint interest on the total amount, divided by length of loan.

So an ammortization schedule would show the same principal/interest payment each month.

-edit- then again I ain't no finance guy. But some CPA told me it was silly to pay early on a car loan because the interest is still the same.

This is true but remember this is a simple interest loan and per diem (daily interest) accrues every day.

So in order to receive the same results as the ammortization schedule it is critical that payments be made every 30 days on the same day each month. Otherwise the numbers will be slightly out of whack.

It would be stupid to pay yearly because your interest is calculated based on your balance.

Higher balance = higher interest.

In Lazee's case his monthly payments are $351.31, he should pay that or higher to quickly reduce the principal balance. The quicker you reduce the prin balance, the quicker the loan gets paid off. The quicker that happens the less interest you pay overall.

Let's say you buy a new car and your financed amount is $15,000.00

Pay it off in 10 days and you only owe $15,000 + 10 days of interest = loan paidoff.

So making payments of $400 - $500 is totally to his benefit. After the interest is satisfied every month, the rest automatically is allocated towards the principal balance.

Who knew that working in my bank's auto loan call center would come in so handy

 

[Zee]

Originally posted by: blakeatwork
Most car loans (Particularly from Dealerships) capitalize the interest into the loan, so that paying early doesn't actually save you any money, and conversely cost them money.

**EDIT** Might be different in the states... but that's pretty much how it works in Canada

Big cyber thanks to you all. Thank you very much. I have an additional question, was there a difference in in choosing 60 months over 48 month? Because realistically, I expect to pay this off in about 12 months, but since there was no penalty for prepayment, I told them to put 60 months down.

Is there a difference in the total cost whether i chose 60 or 48 months since i'm planning to pay it off in 1 year?

 

[RossMAN]

Unless you receive an APR rate discount for 48 months over 60 months, I would choose 60 months.

There are always unforseen circumstances and emergencies which may happen. In those cases it will be nice to have a lower car payment. You can still accelerate your car payments and pay it off in 48 months or sooner if you desire.