Nowadays, having a car is a necessity as it makes transportation so much easier for people. It is natural that at some point in your life, you would want to own one yourself instead of relying on public transportation. However, a car comes with a hefty price that is not affordable to everyone. That is where car finance companies come in handy. They will help you get the funds that you need to buy a car now.

Choosing a Car Finance Company

There are many things that you need to consider before choosing a lender or a car finance institution. Financial products are not created equally, especially when it comes to loans. One loan may be more suitable to your needs and circumstances than another. Make sure that you research your options before applying. You would want to have an idea of how much your repayments would be and other details relating to it.

Having an idea about the details of repayments will help you decide which lender or company is offering the loan that is most compatible to your needs. Determining these details requires a lot of calculations, so you should make use of an online car finance calculator to save time. 

How to Use the Car Finance Calculator?

As mentioned previously, a car finance calculator can save you a lot of time from making complicated calculations over and over again. You can follow these easy steps to use a car finance calculator:

1. Enter the amount that you anticipate you will need into the calculator. You can make a guess of how much you may need and use that amount.

2. The next amount you need to enter is your purchase rate. You can determine your repayments more accurately if you make use of the comparison rate of the car loan.

3. Now you need to enter the duration of your loan or your loan term. Keep in mind that the shorter the term, the more your repayments will be, but the more you will save on interest.

4. You can set the frequency of your repayment. You need to check your options as not all lenders will offer every type of repayment frequency. Choose the frequency or cycle that you are most comfortable with.

5. Choose the type of repayment you prefer. There are different kinds of repayments:

a. Principal and Interest repayments: Repayments that go towards both the amount

you borrow and the interest charged on that amount.

b. Interest-only repayments: Paying the interest that is charged on the loan

amount. This means that you do not actually pay any of your loans off.

If you are not sure, you should select the “Principal and Interest” option. Finance calculators can give you numerical values, but it is also crucial for you to understand what they mean.

How Does Car Loan Interest Affect Your Repayments?

When you get approved for a car loan or a car financing service, the lender allows you to pay the money that you borrowed for a certain number of years. So, how do they make money out of this? You pay them back through the interest of your loan.

Generally, car loans or car finance products use simple interest, which is a type of interest where the charge is calculated based on the principal. Simple interest means that it will be determined based on the amount owed on a loan. This form of loan does not produce compound interest. Loans with simple interest will benefit you, the borrower, since it saves you money.

One thing that you should take into consideration when considering a car loan or car finance with simple interest is the fact that you will not be paying equal amounts of interest and principal. Your loan will be paid via amortisation. Amortisation means that you will be paying more interest at the beginning of your loan than towards the end.

The Effects of the Loan Term on Interest Charges

Aside from the interest rate, the length of your loan term also affects the amount that you pay. The longer your term is, the more cumulative interest you are paying. However, shorter loan terms will require you to make higher monthly payments. 

There are some things that you can do to reduce your interest charge, such as making unscheduled payments, that will bring down your loan balance. 

If you make unscheduled payments, you can pay your loan back faster than the initial agreement, which in turn reduces the total amount of interest charges. However, you need to look at your financial situation first. Paying ahead of schedule means spending more money each month, so you need to have some extra cash to make those advanced payments. 

The Effects of Tax to Car Finance Interest Fees

Tax is a whole new level of chaos, and it needs to be worked out on an individual basis. The effect of taxes on the price of the car you plan on buying is straightforward, meaning that the amount of tax you owe is added directly to your loan amount. 

Your tax rate will not change the interest rate on your car loan. The amount that does get affected is the amount of money you will borrow. Your taxes will be included in the money that will get from the lender, and you need to pay the interest on the full amount you borrow. Although your taxes do not increase your interest rate, it will increase your loan balance where your interest charges are based.