Q:

How do you calculate the cost of a car loan?

A:

Quick Answer

To calculate the cost of a car loan, visit the BankRate.com loan calculator. There you input the amount you need to borrow, the interest rate and the length period you want to pay the loan. Hit the calculate button to calculate your cost.

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Full Answer

According to ConsumerReports.org, the first thing to consider while calculating the cost of a car loan is the annual percentage rate, or APR. A lower rate equals more savings, while a higher rate leads to a higher cost in interest.

The second thing to consider is the repayment period. For example, a shorter repayment period of three years costs more in monthly payments but saves you more on the interest paid. A longer repayment period of five years costs less in monthly payments but the interest paid overall is higher.

A shorter repayment period helps you avoid the upside down effect, claims ConsumerReports.org. Because you can build equity in the car faster, should you wish to sell the car in one year, for example, you might sell it for more than you owe on the loan. The repayment period you choose depends on what you can afford to pay monthly.

ConsumerReports.org you shop around for the best loan deals. They argue that shopping for a car loan yourself is the best strategy than taking offers from the dealership, as they might be more expensive. Bankrate.com helps you compare deals depending on where you live.

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