Interest rates. How do they work?
01-18-2011, 07:35 AM
#1
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Interest rates. How do they work?
I just got back from the bank to get a loan for a 2001 Silverstone for 13,500. I was going to borrow 15,000(because of taxes) dollars for 5 years at 12.5%(yes high as hell, no idea why). So I guess I'm doing something wrong because I'm calculating 16875 after 5 years :S.
She's telling me that I'll be paying 337 a month for 5 years which is 20,220. There's no way in hell I'm paying 20,000 dollars for a 13,000 dollar car.
So how in the hell did she end up with that number?
Borrow 15,000
Interest 12.5%
5 years
I think she said that the interest rate is calculated daily or something:S
She's telling me that I'll be paying 337 a month for 5 years which is 20,220. There's no way in hell I'm paying 20,000 dollars for a 13,000 dollar car.
So how in the hell did she end up with that number?
Borrow 15,000
Interest 12.5%
5 years
I think she said that the interest rate is calculated daily or something:S
01-18-2011, 07:46 AM
#3
Registered User
In short, the interest rate is pretty high on your loan. The bank wants to make money off lending you money. Because of the principles of finance, a 5 year loan at that rate means you will owe $5k on top of the amount you borrowed. It's how banks make money.
Maybe you are young and dont have much credit history but my bet is that you are needing to take a personal loan for this car because its a 2001. A lot of banks (in the US) will only give loans for cars that are 5 or so years old or newer. If you want an older car you might need a personal loan which usually car an interest rate near what you were quoted.
Without getting into much detail - find an easy car loan calculator online, put in 15k, 12.5% and 60 periods (5 years x 12 months) and it will give you that payment , $337. Then multiply that by 60 payments and you do indeed get $20k.
The best way to reduce the amount of interest you will owe is to a) get a better interest rate if possible or b) save up more money for a downpayment. This way you won't need to borrow as much.
Example: save up 5k, finance 10k. If you borrow 10k @12.5% for 5 years you will pay $225 for 5 years (225 x 60 = 13500) $13,500-$10,000 = 3500 in interest instead of $5k. Or save up $13,500 and you wont pay any interest!
Hope this helps.
Maybe you are young and dont have much credit history but my bet is that you are needing to take a personal loan for this car because its a 2001. A lot of banks (in the US) will only give loans for cars that are 5 or so years old or newer. If you want an older car you might need a personal loan which usually car an interest rate near what you were quoted.
Without getting into much detail - find an easy car loan calculator online, put in 15k, 12.5% and 60 periods (5 years x 12 months) and it will give you that payment , $337. Then multiply that by 60 payments and you do indeed get $20k.
The best way to reduce the amount of interest you will owe is to a) get a better interest rate if possible or b) save up more money for a downpayment. This way you won't need to borrow as much.
Example: save up 5k, finance 10k. If you borrow 10k @12.5% for 5 years you will pay $225 for 5 years (225 x 60 = 13500) $13,500-$10,000 = 3500 in interest instead of $5k. Or save up $13,500 and you wont pay any interest!
Hope this helps.
01-18-2011, 07:47 AM
#5
She is right. It is easiest to understand if you know how to set up an amortization table but instead of trying to explain that to you in a post, just think of it this way, the very first year you would pay about $1600 in interest. The second year you are going to pay about $1300 in interest. You have almost paid $3k in interest in the first two years of the loan.
Its the fact that you are putting $0 down and your credit must not qualify for a good rate.
Do you have credit problems on your record or is this just quoting you a rate that is outrageous and you need to shop around?
The current rate on my loan through my bank on a car I bought in October is 3.25%.
Its the fact that you are putting $0 down and your credit must not qualify for a good rate.
Do you have credit problems on your record or is this just quoting you a rate that is outrageous and you need to shop around?
The current rate on my loan through my bank on a car I bought in October is 3.25%.
