Interest rates are one of the major factors when it comes to acquiring a vehicle without paying it immediately in full. This is known usually as “car loan” or “acquiring a vehicle with a loan”. Also known as “financing”. The purpose of this article, is to give you an idea of how actually interest rates affect your budget when it comes to financing a vehicle. In this "high interest rate" environment, is it very important to be aware what does it actually mean for you getting a car for 6%, 9% or even 14%.

For keeping things simplified, I rounded all rates to the unit, but it will be pretty close to say that 8.99% is almost the same as 9.00%.

The monthly payment difference

Here is a table showing the estimated monthly payment for a car loan with a principal of $30,000 and varying interest rates for 60 months. We will assume it is either a used car or a new one. The most important part is that the vehicle value to finance is 30K:

Note: These calculations are estimates based on the assumption of a 60-month car loan and may not reflect the exact payments for your specific loan. Other factors such as down payment, credit score, and loan fees may also affect your monthly payments, but we will be leaving those out too today.

Now, let's add a new column that includes only the total interest to be paid during that 60-month term:

Now, how about it we finance the vehicle for a shorter time? Here is a table showing the estimated monthly payment and total interest paid for the same car loan with a principal of $30,000 and varying interest rates for 48 months:

If you look closely, the 60-month 8% rate meets in total interest to be paid (10,402.80) to be the same as the 48-month (10,298.72) at 12%. Just $100 bucks away. The only difference relies on the cashflow for the monthly payment.

• 60-months: 594.08
• 48-months: 831.54

So making a call, reading the term to finance when it comes to the interest we will end up paying, for this specific scenario could be analyzed from the monthly cashflow perspective.

Interest difference for the same rate

Here is another table showing the estimated monthly payment, total interest paid, and the difference in total interest paid for a car loan with a principal of $30,000 and varying interest rates for 48 and 60 months:

And next and final, here is the varying interest rates for 36 and 60 months. I went to the two extremes, so you could actually see how much it differs and how important it is to find a midpoint between what you expect to pay in interest, what the dealer is offering you (or your bank) and what you can actually do to turn the math into your favour, whenever you can negotiate.