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A N o I N T R O D U C T I O N o TO o L O A N S
Before we begin, let’s review some of the main financial ideas behind buying a car.
A new car is expensive. Since most people cannot afford to buy a new car outright, they borrow money from a bank and repay that money over time. The bank charges a fee called interest for lending the money. When you repay your loan, you pay the bank the amount of money you borrowed, plus the interest. Because of the interest, you always pay back more than you borrowed.
The amount of interest that you pay each year is determined by the interest rate. The interest rate tells you what percent of the total amount of money that you borrowed must be paid to the bank as a fee. Interest rates vary, based on the economy and the type of loan. In general, the more time you take to repay a loan, the more interest you will pay.
Since interest is calculated on the amount of money you borrow, it is best to borrow as little money as possible. You can reduce the amount of your loan by making as large of a down payment as you can.
Typically, loans are repaid in monthly payments. Your monthly payment is determined by your interest rate, the length of your loan and the loan amount.
In this workshop you will explore how changing the interest rate, the down payment and the length of the loan effects your monthly payments and the total cost of a car after all of the interest is added.
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