How To Calculate Interest On A Car Loan

A comparison rate is an interest rate the encompasses all the major fees and charges payable throughout the course of a loan. For example, an interest rate of 7% may look good, but with fees and charges this can balloon out to 10%. The comparison rate gives a buyer a complete picture of how much the loan will cost overall.

Depreciation is the rate at which an asset loses its value. When buying cars, you will typically lose 20% of the value when driving a new car home from your purchase place. That means if you paid $20,000 for a car, it will be worth $18,000. Cars depreciate due to newer models replacing older ones, wear and tear, damage, and other factors.

An amortisation table is an itemised breakdown of repayments showing how much of the principal and interest is being paid off per repayment cycle. This can be shown as monthly, fortnightly, or weekly payments. The amortisation table is more accurate for fixed rate, rather than variable rate, car loans.

Borrowing capacity refers to the amount a customer can borrow from a lender without having trouble paying back the loan. A customer with a high borrowing capacity can borrow more money; a low borrowing capacity means a customer may only be approved for smaller amounts.

Using a car loan calculator needs three bits of information: how much you intend to borrow; the interest rate; and your loan term. Some calculators may also allow for adding regular fees. Once you input these figures, a calculator will show you the total estimated cost of the loan including the amount of interest you’ll pay. Note that this only shows accurate representations of fixed rate car loans. Remember any calculation you make are only estimates and not final figures.

Creditworthiness is the term banks and lenders use to refer to someone’s risk level when it comes to credit and finance. High creditworthiness means the prospective borrower is a low risk. This means banks and lenders are more open to approving loans and offering lower interest rates. Low creditworthiness means someone is a higher risk, and may encounter difficulty gaining finance and credit.

A loan term is the length of time a borrower has in order to pay back a car loan. The average car loan term is five years, though some lenders offer terms as little as 12 months or as long as 7 years.

Some specialist lenders such as P2P lenders may lend to customers without conducting credit checks. However any accredited lender or broker must conduct credit checks as part of Australian responsible lending practices.

Yes, some lenders will approve customers on disability or pension payments for car loans. You may have to fulfill a certain income threshold before approval. Other alternatives are P2P lenders or micro-financing organisations that help provide low-interest loans for people in need.

Yes; people with bad credit can apply for a bad credit car loan. However, the interest rates are much higher compared with “prime” or mainstream consumer car loans. These can be high as 20-30% p.a. Make sure you only consider accredited brokers or lenders to avoid any difficulties.