A lease is an agreement to use a vehicle for an agreed number of months (typically 2-4 years) and miles (ranging from 10,000-20,000/year). If you exceed the contracted term or want to turn your lease in early, this will void the contract and fees may be assessed based on your lease agreement. At the end of your lease term you can either turn the vehicle in and pay any end-of-lease fees, or purchase the vehicle if your lease includes a purchase option.
A loan’s monthly payments may be higher than leasing but part of each payment is going towards the purchase price of the vehicle. You can drive as many miles as you want, but your resale value may be affected. A typical auto loan term is 4 to 6 years and you own the vehicle and get to keep it at the end of the financing term.
What Monthly Payment Can I Afford?
Studies prove that your total car expenses, including monthly payments, insurance, gas and maintenance, should be about 20 percent of your take-home monthly pay. For example, if your monthly paycheck is $4,000. Then a safe estimate for car expenses is $800 per month.
If you can hold off from buying a car for a few months, it’s a good idea to test out your monthly payments. For example, if your car payment will be $800 per month, take that amount, and put it into savings instead. If you can make timely payments on your other bills, and still put food on the table, then it’s safe to say that is an appropriate monthly payment for you to handle. Plus, that’s more money you have in the bank to go towards a down payment.
How Is Auto Loan Interest Calculated?
Your auto loan is calculated using simple interest. We multiply the outstanding principal balance by your daily interest rate.
How Can Late Payments Affect Me?
Your payment is due on the same day every month. If you make your payment as scheduled with no other changes to your account, you should will pay no more or less than the original scheduled payments on your contract.
Missing a payment adds both interest and late fees. When we receive a payment is it first applied to interest due and the remainder to principal due. If you pay late, more of your payment will be applied towards interest and a higher principal will remain due than scheduled.
Moving your payment due date and payment deferrals adds interest and extends the repayment schedule.
How Can I Pay Off My Loan Faster?
Paying more than a regular monthly payment can help lower your principal balance faster and reduce the interest accrued each day.
How Does My Credit Score Affect Me?
A credit score determines a customer’s ability to obtain additional revolving and installment loans.
Auto loans are considered installments, meaning a contract was entered to pay equal payments for a certain period of time. Revolving debt allows a customer to increase the amount drawn and paid down, in a cycle format with a maximum amount borrowed and minimum monthly payments.
Credit scores are grouped in tiers ranging from sub-prime to super-prime. The higher your credit score, the lower interest rate you will be offered.
How To Dispute An Error On Your Credit Report?
To dispute an error on your credit report visit one of the following:TransunionExperianEquifax
What Should I Do If I Have Problems Making My Auto Loan Payment?
If you are having problems affording payments, contact your lender and ask what options are available to you. The sooner you contact the lender the better chance you have of working out an arrangement that gives you time to get back on track.