First time buyer!

So can someone clarify something for me?

If I get 3% APR on $18,000... then the dealer will be making $540?

(since 3% of 18,000 is 540).

Is it literally a % of the total amount?

Are there hidden fees or anything else to loans?

 

Here is a handy calculator:
Auto Loan and Car Finance Calculator

The loan amount is compounded (not sure if it's the right term) over the period of the loan. It is not a straight 3% interest at the time of transaction.

Other fees like documentation, taxes, registration may be added to the total sale price of the car (out the door price) minus your down payment.

Hope this helps, good luck!

 

That's 3% annual percentage rate (APR). The total amount of the loan is charged 3% interest annually, in theory.

It isn't quite that simple, however. When you take out a loan, you have to repay the amount of the loan, called the 'principal' plus the interest. If your loan is at 3% APR, the interest amount will be 'compounded' on a less than annual basis.

For instance: If your loan is at 3% APR, but compounded monthly, that means that the 3% is divided by 12 months, and then the total remaining principal is charged .25% per month. So, instead of paying a $540 finance charge for the total amount one time, you pay $45 interest the first month, and so on. If your payments are $300 a month, the first month, you pay $240 in principal and $45 in interest. The next month, $255.60 on the principal, $44.40 in interest. Some loans are compounded weekly, some daily, etc.

Hidden charges: You will have to pay for registration, title fees, bank lien fees, etc. Frequently, these amounts are included in your loan so you don't end up with so much immediate out-of-pocket expenses, but the interest ends up adding to the total over time. IF the dealer is the one financing your car then, like as not, they will not get the interest on the loan. More often than not, they have contracted with a specific lender and they get a portion of the amount as a referral, more or less. The dealer will make their money on any holdback, any amount over what they paid the manufacturer for the car in the first place, and markup on whatever accessories, etc that they sell to you.

I believe that Edmunds has some good info for first time buyers, but I could be wrong. No time to look it up tonight as I really should be in bed already. I have to be at work in 6 hours.

 

eeep that's complicated stuff

i'm not really that excited to deal with it

 

e=mc2, +rep

 

You pay 3% every month in your payment. The 3% is calculated from your payoff amount, or principal amount. As your principal drops everymonth the 3% applied to your payment becomes less and less. It also depends on if you pay the minimum payment or you pay more than your minimum payment. Seriously man... for a easy quick deal just come see me. Theres a reason I have sold so many Fits on this forum to people.

 

If the dealer calculates the loan payments in the usual way the % yearly interest is added each month to the loan balance. Its done by adding that amount as 3/12th of the amount added each month (3% per year is 3/12th % per month). So if you had a 5 year loan, (that's 60 months), there is a 3/12% interest added per month. For a 60 month loan at 3% the 'compound interest factor' is 1.16161678. Thats a total loan value you pay of $18,000 x 1.16161678 or $20,909.10. That is is the total loan including interest you pay over 5 years. Thats $348.49 per month car payment.
Now the 'kicker' : that $2909.10 interest ( &20,909.10-18000) isn't collected equally each month. Interest is collected more at the beginning than the end. Its done by the rule of 78, which is the sum of the digits 1 to 12, as though a 1 year loan. The first month of a one year loan is like 5 months on a 5 year loan. Interest is collected in reverse order so that on a 1 year loan 12/78ths of the interest is collected the first month, or in the first 5 months 12/78ths in the first 5 months. So in the first 5 months the interest collected is $447.55 of the 2909.10 you owed in interest so your loan value of the Fit only declined from $18000 to 15,538. If you paid it off in 5 months you'd payoff $15538.45. You paid $1742.45 to the loan (5 months at 348.49/mo) but only reduced your loan by $1294.90.

Sorry to compare this 5 year loan to a one year loan but the numbers are easier to see. And in the last 5 months you will only pay 1/78 of the interest, or $37.30. The point is the lender gets his faster than you.

Further, dealers may include a penalty for early payoff, meaning they will get more of the interest than you would ordinarily pay. it shows up as a payoff higher than calculated; often its 1% or more. Check your loan document, or better yet have a lawyer review it.
Worse, there can be other fees added to the loan principle that are disguised in the loan. If the monthly payment is more than a couple of dollars higher higher than $348.49 ask him to explain why it is . The amount of 1 compounded tables are well published calculated numbers for decades
Actually, 3% is a pretty good interest rate but Honda is making money available to dealers at rates of 0.9% typicaklly, so he's making a little on you too.
Not considered here is the dealer added fees, state and insurance fees, and prep fees, etc. We just considered the loan amount, or principle loan value.
Anything not clear get back to me and I'll try to explain it better. Its not an easy subject.
cherers and good luck.

 

Props to mahout for explaining amortization better than I could! I knew what I meant, but getting it typed out was a bit more difficult than expected and I ended up getting it backwards.

Much the same stuff with home loans (mortgages). In the last 5 1/2 years, we've paid $46,000+ on our $82,500 mortgage and still owe $75,000. That's right, only $7,500 has gone towards paying for the house. The rest has been interest, insurance, and taxes. Of course, that interest is tax-deductible, so we end up getting more back come tax time than what we put into the system.

 

Hi,this is alora.Smart Options for refinancing your Car Loan. Smart option for refinancing your car loan? What is smart about refinancing a loan on a good that loses value faster than the Dow Jones in December 2008. If you want to more information about car loans please visit us.

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alora

Car Loans

 

Here's how mine worked:
I signed the papers.
I drove the car home.
I send my money to the lender.
Someday, the lender will have received enough money from me, and the car will be mine.
Oh, and it would be great to have gotten my loan at 3% APR. I thought I was doing pretty good when I got it at 5.75%. If you're a first-time buyer and are getting the loan at 3%, you are a lucky man (or woman). You will save a lot of money over the life of your loan.