Auto Loan Finance

Unit 2: Compare Costs

Financing A New Car

New car loans are often extended for several years to decrease monthly payment amounts—but the longer the term of the loan, the more interest you will pay.  Here’s how expenses stacked up for ownership on a $20,000 new car.

At the end of the three years, here's how the totals look:


New Car Ownership — Three Year Total (3 year loan @ 6%)

 

 

 

Down Payment

 

$3,000

Monthly payment

$608 per month

$21,888

Insurance

 

$5,700

Maintenance & repairs

$1,100

DMV Fees ($300 included in monthly payments for first year)

$1,000

TOTAL

$32,688


Financing A Used Car

Here’s how much a $10,000 used car costs making a $2,000 down payment and paying off the balance over three years at an 8 percent interest rate.

Over three years the totals look like this:


Used Car Ownership — Three Year Total (3 year loan @ 8%)

 

 

 

Down Payment

 

$2,000

Monthly payment

$285 per month

$10,260

Insurance (rates drop after first three years)

$3,430

Maintenance & repairs

$2,700

DMV Fees ($200 included in monthly payments for first year)

$650

TOTAL

$19,040


Buying New vs. Buying Used: Not surprisingly, it costs a lot less to buy and drive a used car over a three-year period than a new car.

Here are a few facts you might want to consider when making the decision to buy new or used:

  • Decide what matters most to you: price, reliability, features, investment value, convenience or insurance costs. Rate the factors in importance.
  • New cars depreciate more than 20 percent the moment you buy it.  If your budget doesn’t allow a new car, you may find a used luxury model for the same price. 
  • Know your credit and work with your credit union before searching for a new or used car—having pre-approval will help with negotiating a price.
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