Compare an auto loan before you sign
Look beyond the monthly payment to the APR, term, amount financed, and total cost.
You will learnCompare loan offers on the same terms and explain why a longer loan can cost more.
Quick scenario
Choose an answer to see the explanation.Does the auto-loan offer with the lower monthly payment always cost less?
Worked example
A shorter and a longer loan
Two illustrative offers finance $18,000. A 48-month loan at 7% has a higher monthly payment than a 72-month loan at 7%, but the longer loan keeps the balance open for two extra years and produces more total interest.
Use the written total of payments to compare the full cost.
Key ideas
Three things to know
Compare the same five numbers
Write down the vehicle price, down payment, amount financed, APR, and loan term. Then compare the monthly payment and total of payments. A dealer may focus on the monthly payment because changing the term can make it look smaller.
Read more
- Vehicle price
- Amount financed
- APR
- Number of payments
- Total of payments
A longer term can cost more
When the amount and rate are similar, more months usually mean more time for interest to accrue. A long term can also leave a borrower owing more than the vehicle is worth for longer.
Check the final paperwork
Review whether taxes, fees, service contracts, warranties, or other add-ons were included in the amount financed. Make sure the written contract matches the offer you intended to accept before signing.
Practice
Compare written offers
Use the example first. Then change one number and compare the result.
Interactive calculator
Compare a 48- and 72-month loan
Use the same amount and APR to see how a longer term changes both the payment and total paid.
Knowledge check
Check your understanding
Question 1 of 2