What Are Your Car Finance Payments Really Made Up Of?

Before getting car finance many people will use an online car finance calculator to find out how much their loan repayments will be. But when they have been given an approval the payments can be significantly higher than expected. The difference can be explained by having a look at what makes up your weekly or monthly finance repayments.

The reason behind the difference in what the calculator shows and the actual repayments is because the online calculator is giving you only a guide of what the principal - the amount for the purchase of the car, and the interest repayments will be. But when you are paying off a loan there are other expenses included in the repayments.

The loan repayments will include any fees and charges that are part of the loan. These are normally include a monthly account fee and often will include a loan setup fee, the cost of which is spread across the lifetime of the loan. These fees whilst not normally excessive can add up to make a noticeable difference.

These fees and charges are at fixed amount and you can see on the loan contracts and documentation exactly what they will be over the lifetime of your loan. You can in some cases choose to pay these at the start of you loan in a lump sum this will allow you to avoid paying any interest on them. This can bring those repayments closer to what you may have originally expected.

There is a wide range of extras that can be included in your car finance including warranties, gap insurances, consumer credit insurance, comprehensive insurances and many more. The cost of these insurance policies will depend on the loan particulars but the cost will be once again spread across the life of the loan and increase the repayment amount. You might for example get consumer credit insurance which can be quite expensive and may add an extra $3000 to your loan amount which spread over a 5 year term will add an extra approx $43 to a monthly repayment amount.

The bonus for a borrower is that any of these extras must be shown on the loan documentation and contract so a borrower can choose if they can afford the repayments before signing into any finance. Likewise there generally will be a breakdown of the fees and charges laid out in an easy to read manner so a borrower can make an informed choice before committing to the finance.

Car finance can be a complicated process so to help an applicant be more informed Finance HQ has a range of articles and tools so a borrower can make the best car finance decision.