Second item of household expenditure after housing, the purchase of a car is not considered lightly. Whether it’s a new or used vehicle, you may need to use a credit agency to finance your project. However, not all of them offer the same credit rates.
In addition, the amount of monthly payments can also vary from one organization to another. Before embarking on a car loan, it is therefore essential to know how to calculate the overall car loan cost. Stay zen: JeChange explains everything to you.
Know how to calculate your borrowing rate
Taking out a loan is not always extremely simple, especially if you want to understand in detail how a loan works. Knowing how to calculate the rate of a 2018 car loan to better know the total cost of the operation is however essential.
To do this, first keep in mind that the borrowing rate is the central element of your car loan. Known as the annual percentage rate of charge, or APR, this indicates the interest you will have to pay. This is a combination of the base rate of the credit, the registration fees, the file, as well as any insurance premiums, in particular when this is compulsory and taken out with the banking establishment or of the credit institution.
Clearly, the APR auto loan calculation represents the net rate, that is to say the exact cost of the loan. It includes all expenses in addition to the amount to be reimbursed.
The APR is therefore the rate that you must have in mind before subscribing because it includes all the costs and therefore what you will have to reimburse. Finally, it allows you to really compare the rates charged by banks and credit organizations, which you can do easily, in particular thanks to a car loan simulation.
Good to know : If credit organizations have the right to present the gross rate (more attractive), they must also include the APR, in particular on offers and advertisements.
Reimbursement of your monthly car loan payments
Each month, you will repay part of your car loan by monthly payments (we also speak of rents or maturities). In concrete terms, the sum of these monthly car loan payments is equal to the amount of the sum borrowed for the purchase of your vehicle, the interest on this same sum as well as the various credit-related insurances.
Also, when you carry out a car loan simulation, it is important to focus on the proposed rate but also on the amount of the monthly payment.
Good to know : If you have the financial capacity, it may be advantageous to make a small effort to repay a little more per month in order to reduce the total cost of the loan.
How to simulate a car loan before borrowing
A car loan commits you and must therefore be repaid. Also, it is strongly recommended to check your repayment capacities before committing to taking out a loan from a bank or a lending organization.
Carrying out a car loan cost simulation is not complicated: you can carry out this operation for free and without obligation on most banks and credit organizations’ sites. These have an auto loan simulator.
You will only need to provide a certain amount of information:
- specify the car you wish to buy (new, recent used, used more than two years old)
- indicate the total amount of the loan
- the repayment period you wish to obtain.
Note that you will also be asked for information concerning your personal and professional situation, in order to provide you with a tailor-made offer. Then, depending on the amount and the duration of the loan, you will obtain a proposal including the monthly payments, the fixed APR (Annual Effective Annual Rate) and the total amount (application fees included).
Compare car loans before signing
Comparing car loans with each other involves taking into account a certain number of criteria. Indeed, from one lender to another, a car loan of the same amount will not cost you the same.
When you take out a loan, you certainly repay the amount borrowed, but also the interest calculated from the borrowing rate. This is therefore an essential criterion to take into account, but there are others that also vary the cost of your credit. Among them :
- The duration of the credit – The longer your credit extends over time, the more your loan will cost you. Admittedly, it is sometimes tempting to better support a credit to want to spread out its repayments and therefore to reduce its monthly payments. But be careful, by opting for this strategy the cost of your credit is likely to skyrocket. Conversely, by increasing the amount of your monthly payments by a few euros over the repayment period, the savings made on the total cost of the car loan can be significant. The solution ? Find a happy medium between the amount you can repay each month without disrupting your budget, and the cost of your credit.
- Application fees- They vary according to the bank or credit institution. These fees are added to the credit amount. They represent on average between 1 and 1.5% of the borrowed capital and can be negotiated. Note that, in some cases, they may be offered to you as part of one-time promotional offers.
Note that there are criteria related to the economic environment that directly impact the rates offered by banks and credit organizations. Thus, if you take out a loan today, the rate will probably not be the same as if you decide to take out a loan in three months. It is up to you to choose the most opportune moment before embarking on this operation.
Conclusion
The total cost of a car loan is essential data to allow you to evaluate an offer. But in addition to taking into account the different criteria mentioned here, you must also ask yourself a certain number of questions:
Can you afford a loan with a high monthly payment, but whose total cost is lower than with a reduced monthly payment? Is it worthwhile for you to borrow the whole amount, or is it better to borrow only part of it?
The answers to these questions will allow you to choose the best offer for the purchase of your new vehicle.