Total Loan Cost

Many people assume when they finance a new car that as long as the monthly payment fits their budget, it's all good. This isn't always the case. Sometimes lenders and car dealers will approve longer-term loans (say 60 months instead of 36 months) to shoehorn a monthly payment into a customer's price range. However, what that means is that the customer is actually paying more because it takes them longer to pay off the loan. If you are borrowing $20,000 at 8% interest, your monthly payment for a 60-month term will be $406, whereas the monthly payment for the same amount and rate for a 36-month term will be $627. The lower monthly payment on the 60-month loan can be deceiving. By the time you pay off the 60-month loan, you'll actually have paid $4,332 in interest vs. $2,562 on the 36-month loan.