The financed amount of an auto loan is the amount you're borrowing from a lender, plus any additional charges, fees, and applicable taxes or extras. It's half of what you're monthly payments are based on, and what your interest is added to. There are a few facets to your total amount financed that you have to take into account, including principal and fees, and some things that aren't included, like interest.
Here's a look at what your total financed amount entails, and how to use yours to determine your car payments.
Key Factors of the Financed Amount
For a car loan, the amount financed is the amount of credit the lender extends. It's the amount that requires repayment. However, it's not the only thing you have to pay for. Interest charges accrue on this financed amount, and that total is what you must repay.
Here's how your financed amount breaks down:
- Principal – The base amount you're borrowing for the vehicle, minus any down payment or trade-in values.
- Charges and fees – Additional fees and charges included by the lender and dealer will be rolled into your loan amount before interest is calculated.
- Interest is excluded – Once your principal and fees are added together, your interest is added. Interest is the price to borrow money, and the amount you have to repay will depend on your situation. Borrowers with better credit scores will typically get a lower interest rate, which in turn means they will pay less to borrow money.
How Amount Financed is Calculated
Knowing your financed amount is crucial for calculating your monthly payment, but you must also know your monthly interest rate and the total number of months you're borrowing for. First, let's calculate your amount financed.
Your total amount financed can be looked at like an equation to help you figure out what you're paying for. Your financed amount is:
- Vehicle Price
- + Sales tax
- + Title and Registration Fees
- + Add-ons
- - Down Payment
- - Trade-in value
To figure out your monthly payment from here, you would take your total loan amount and make some other complicated equations, so for ease, it's best to use a car loan calculator to find out exactly how much you will be paying each month.
Implications of the Amount Financed
Remember that a higher amount financed means higher monthly payments on a car loan. If you're concerned about the amount you're having to finance, it could have a big impact on your loan. The more you finance, the more interest you'll pay over the life of the loan, and the higher your risk of
negative equity will be.
Additionally, keep in mind that your loan approval can be impacted by the amount you're trying to finance, especially if your credit isn't the best. Lenders consider the amount you're financing in comparison with your credit score,
income, and
LTV. The more you ask to borrow, the higher your interest rate may become as well.
Common Misconceptions
As we've said, the amount financed is the total amount you have to repay, including taxes, fees, and interest. There are many misconceptions as to what the total financed amount includes, or can do. Here are some myths and the truths you need to know.
Misconception #1:
The amount financed is the MSRP of the car. This is false. The MSRP, or manufacturer's suggested retail price, is just the beginning when it comes to the amount financed. The vehicle's selling price only makes up the principal of your financed amount.
Misconception #2:
The financed amount is the amount you have to repay. Again, it's only the beginning, and you must add taxes, fees, and interest to get your repayment amount.
Misconception #3:
If I finance with zero down, I won't owe anything upfront. This is untrue. When you finance a vehicle – even one with "no money down" – taxes and fees, as well as insurance costs, are due upfront when you have an auto loan.
The Bottom Line
Your total amount financed is so much more than the price of the car. If you need to keep your amount financed manageable, it's important to remember to make the largest down payment you can afford, avoid adding unnecessary options to your loan, and consider buying a less expensive or used car.
If you're not sure where to start looking for your next car loan, we want to help. Auto Credit Express can connect you with the dealership in your area that has financing opportunities for even those struggling with credit issues. Don't wait, get started with us today!
