It’s time to “go” and you’re in the parking lot with soft hands, a twinge in your stomach, and a pounding you can’t feel in your temples. You are breathing very quickly, and your pupils are dilated. I know. As a motoring journalist, I’ve been there.
Before signing the papers, be sure to get up to speed with our beginner’s guide to car loans, and read on to get a basic look at how car loans work and the implications of the options and choices you’ll face along the way.
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How do you pay for a new car?
There are a few different ways to pay for that new car or truck.
- Money alonealthough you probably wouldn’t take a gym bag full of twenty to the grocery store. So, let’s expand this definition to include any means of paying for the car upfront, in full, with your own money. That can be a bank draft, certified check or electronic funds transfer (EFT).
- You can also rent a car, where you will agree to make regular payments over a set period of time—for example, four years. After that, you can buy the car for its remaining value, or return it.
- Then there is car financingaka, getting a car loan.
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Fig. Financial
- A quick, no-obligation personal loan offer
- 100% online application
- There are no early payment fees
- APR: 8.99% to 24.99%
- Loan amounts: $2,000 to $35,000
What is a car loan and how does it work?
When you have a car loan, the lender pays for the car up front, and you pay them back (with interest) which spreads the cost of the car over time.
I recently parked a 2024 Ford F-150 STX online that came in at $59,259 after tax and other price incentives. Next, I visited the Payment Ratio. It’s like your favorite “build your own pizza” pizza app, but with dollars, time and low fees instead of high-end items.
The pay scale allows you to play for free with all the options and conditions available to see which appeals to you the most.
First, choose how long you want to make the payments.
For my new truck, I can choose from 36, 48, 60, 72 and 84 months—that’s three to seven years, if you count. This is called a “term loan” or “term loan,” and the options you’ll be able to choose from will vary.
If you have an exchange, here is where you can enter it. Calculate its value, then plug it into a calculator to watch those regular payments go down. The same goes if you have a down payment, which you can include as well.
As you switch between loan terms, keep an eye on the on-screen interest rate or APR (annual percentage rate).
The lower the interest rate, the less expensive it is to borrow money. Sometimes, you will see 0% financing options, where you borrow money for free, without interest.
You’ll also notice that longer loan terms offer lower payment rates but often come with higher interest rates, which will cost you more money. Choosing a shorter loan may mean higher average payment rates, but in the end it means the car will cost you less.
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