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Car Loan Basics: Monthly Payments, Interest Rates, and Loan Length

Learn about the basics of car loans and how interest rates, loan length, and down payment amount affect your monthly payment. Calculate your monthly payment using the given loan information and explore the relationship between these variables.

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Car Loan Basics: Monthly Payments, Interest Rates, and Loan Length

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  1. Warm-Up • Sarah is buying a new car. She will take a $37,450 loan out for 5-years at 2.5%. What is the monthly payment using the formula. • Joey is going to purchase a car for $28,000. He doesn’t have good credit so his loan will be for 6-years at 6.25%. What will his monthly payment be? $664.64 $467.35

  2. Buying a Car Basics of Car Loans Explore the effects of amount, interest rate, and length on your monthly car payment.

  3. Essential Question What is the relationship between interest rate, down payment, and time as it relates to your monthly car payment for a loan?

  4. Car Loans There are three variables that determine the monthly payment of a car loan. They are the interest rate, the length of the loan, and the amount of the loan. Today, we will hold two of the variables constant as we change one.

  5. Monthly Payments As a general guideline, your car payment should be no more than 15% of your net monthly income (i.e. take home pay). Since we want to focus on the relationship between our variables today, we will calculate the monthly payments for the auto payment using an online calculator, instead of the formula.

  6. Interest Rate Remember, this is directly affected by your credit score. • Excellent* 3.24% • Good 3.89% • Fair* 4.02% • Bad* 7.70% • Poor 9.09% *Rates given as of 9/6/17 from Capital One Auto Financing

  7. Down Payment The more you put down, the less you have to borrow, so the lower your monthly payment will be.

  8. Length of Loan The longer the loan, the lower the monthly payment, but the higher the interest rate.

  9. Be Careful!

  10. Calculations Send 1 person to grab Chromebooks for your table. • Log on • Go to our Classroom page • Use the link provided on the announcement. • Calculate the monthly payment for each set of information

  11. Calculations Total cost of car = Amount of interest paid = % of car paid in interest =

  12. Car Dealerships are the Worst

  13. What to work on? Car Research (due this past Tuesday - cannot continue on with project until this is complete) Finance Info and complete FORM in Google Classroom (due yesterday - cannot continue on with project until this is complete) Loan Amortization Schedule(due tonight - you must put in YOUR info from the finance portion above) Depreciation and Loan Graph(due tomorrow night - you must have two graphs) Quiz Corrections (due end of class tomorrow) Reminder! Late work is only accepted up to 3 days late!!! Midterms are next week!

  14. Reflection On a separate sheet of paper: Explain the relationship between interest rate, down payment, and length of the loan as it relates to car loans. This will be collected on your way out the door!

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