Introduction to Car Loans

Welcome Back! In this activity, you will learn about financing
a car. You will use a spreadsheet to calculate loan
costs and help you make decisions about what kind of a loan you might be able to afford. Have you ever seen an advertisement like this? Chances are, you probably have. But what does all this mean? Say you are in the market for a new or used
car. You find a car you love, but you can’t afford
to buy it out of pocket. Few people can! In fact, 85 percent of new and 54 percent
of used car purchases are financed. Financing means that you borrow money from a lender
and pay them back in monthly installments. Not only do you pay back the principal,
or the amount of money you borrowed; you also pay an additional percentage of that principal
to the lender for using their money. This additional percentage is called interest. Different institutions offer different interest rates. You can get car loans from car dealerships,
banks, credit unions, online financial service sites, and other financing companies. Several factors determine the auto loan you
can get. They can lead to very different payments for
you, the buyer. The three major factors in financing a car
include: The amount of money you borrow The interest rate, also called the annual
percentage rate or APR; and The term of the loan, or the time it takes
you to pay it off–usually between 3 and 6 years. Your monthly payment varies depending on how
you adjust these factors. Sometimes having a lower monthly payment actually
means that you pay more overall! In this activity, you will create a spreadsheet
like this one to help you determine how much money you could afford to borrow when buying
a new or used car. It isn’t always the best choice to borrow
the maximum amount that a lender will loan you! Spreadsheets can help you determine how much
money you could actually afford to borrow. On the spreadsheet, you will select an interest
rate, or APR. And a loan term…. Then, convert these to monthly amounts. You will also specify a price range for the
car you will research. Once you have this basic information, you
will calculate and record: A table of possible loan amounts–that is,
how much money you would consider borrowing to buy a particular car; Your monthly payment; Total payments, or the total amount you will
spend on the car over the entire loan term; And the amount of money you will spend on
interest. Once you set up your spreadsheet, you will
research new or used cars to get an idea of what they cost. On your spreadsheet, you will calculate the
monthly payment, total cost, and interest cost for each car you find. After you research car options, you can easily
change the rate and loan terms in your spreadsheet to compare costs. This will help you determine which car and car loan would work best for you–hypothetically, of course! To begin, go to to start a blank spreadsheet. Name it “Loan Amount Chart.” Then, move on to the next video to start calculating
costs. Now, it’s your turn Go to to start a blank spreadsheet. Name it “Loan Amount Chart.” Then, move on to the next video.

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