Deal Or No Deal: Understanding Car Loans Down payment, interest rate, loan term - the lingo involved with buying a car can seem overwhelming. The following activity will give you a rough estimate about the car-buying process (it is a little more complicated than this) and terminology. Follow the steps below to figure out how much your dream car's monthly payment would be and how much you ACTUALLY pay for the car. Step 1: Decide on a make and model. Visit www.truecar.com or www.Edmunds.com to find the price of the car you would like to buy; then record it here. Total purchase price: $ 2 94 0 Step 2: Determine how much money you will need to borrow. Subtract the money you have for a down payment (the amount you give to the dealer on the day of purchase) from the total purchase price. For this exercise, imagine you have saved $2,000 for a down payment. The resulting total is the loan principle; record that amount here and in the chart below. Loan Principle: $ 2 2490 Step 3: Get quotes from several lenders. The term and interest rate of the loan will vary and both of these factors will affect your monthly payment. (For this exercise, pretend that you have received the rates below.) Step 4: Calculate your total interest paid. Your total interest paid is your principle multiplied by the loan term in years (convert months to years) and then multiply that by the interest rate (convert to a decimal). Record your total interest paid in the chart below. Step 5: Calculate your total amount paid. Take the total interest paid from step 4 and add it to your loan principle. This will ell you how much you will actually be paying for the car. Record your total amount paid in the chart below. Step 6: Calculate your monthly payments. Take your total amount paid from step 5 and divide it by the number of months in your loan term. This will tell you how much your monthly payment will be. Record your monthly payment in the chart below. I = Q2, 4 40 ) (0 . 067 5 ) ( 3 ) = Lender Loan Loan Term Interest Total Interest Total Amount Paid Monthly Principle years Rate Paid Payment Scenario 1 122.990 36 months 6.75% 4 5441 27,634 2 # 646836/41 Scenario 2 22.496 36 months 9.55% Scenario 3 22. 996 36 months 11.25% Scenario 4 24 00 48 months 5.75% 13 320 $271526 16 5 Scenario 5 2:294 48 months 7.99% Scenario 6 22.94 48 months 10.45% Scenario 7 2:40 00 60 months 3.99% 4 78 8 $28768 57 / 980 Scenario 8 220940 60 months 8.25% 2 3 49 - 10 03 99