Skip to Main Content

Financial Literacy for Students: Buying a Car

How Rates and Terms Can Affect My Payment

When you purchase a vehicle, you typically are taking out a loan and agreeing to a monthly payment amount. Your monthly payment amount is determined by three main factors:

  • Your Loan Amount
    • Are you giving a down payment? This will reduce your total loan amount
    • Are you trading in another vehicle?
      • If you owe nothing on a trade in, a dealership may give you credit toward your purchase for what they think the trade in is worth
      • If you still owe money on your current car, some lenders will let you roll over that balance into your new vehicles loan
        • This is often referred to as being "upside down"
    • You can also try to negotiate the price of buying a new (or used) vehicle
  • Your Loans' Interest Rate
    • Auto loan rates are determined by a variety of factors, such as your credit, income, loan term, and loan amount
    • Generally, the better your credit, the lower your interest rate can be
    • Lenders may also consider your income and any current debt you hold, to make sure that you will be able to afford the car payment 
      • This is often referred to as your "Debt-to-Income Ratio"
  • Length of Your Loan Term
    • Car Loan terms typically range from 3 years (36 months) to 7 years (84 months) depending on how quickly you want to pay off the vehicle and how much you can afford each month
    • The term length can also affect the interest rate that is available to you

Taking these factors into consideration, you can use an online auto loan calculator or similar tool to figure out a payment that works for you

Car Insurance

Car Research

Contact

James A. Cannavino Library

3399 North Road
Poughkeepsie, NY 12601
(845) 575-3106

In the Library