Loan terms
Assumes a fully amortised loan with equal payments and no balloon at the end.
The monthly payment is the wrong number to shop on
Stretching the term makes any car look affordable, because the same debt is spread over more months. The total interest goes the other way. Compare 36 months against 72 on the same car and the gap in what you finally pay is far larger than the gap in the monthly figure.
A deposit cuts the interest twice over
Money paid up front is not borrowed, so it never accrues interest at all. Putting a fifth down does not just lower the payment by a fifth — it removes a fifth of the interest from the whole schedule.
The loan is not the cost of the car
Insurance, tax, registration, servicing and fuel land outside this calculation, and over five years they often add up to more than the interest. A payment you can just about meet is a payment with no room for the rest of it.
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Frequently asked questions
Q. How is the monthly payment worked out?
The standard annuity formula: every payment is identical, and the split between interest and principal shifts across the term. Early payments are mostly interest, later ones mostly principal.
Q. Does a longer term ever make sense?
When the alternative is not buying a car you genuinely need, or when the rate is very low. It stops making sense when the loan outlives the car's value and you end up owing more than it is worth.
Q. Are balloon payments handled?
No. This assumes the loan is fully repaid by the final payment. A contract with a large lump at the end has a lower monthly figure and a very different total.