Key points
- Amount financed, APR, and term drive the monthly payment.
- A longer term can reduce the payment and increase total interest.
- Down payment lowers the balance but does not fix an inflated price.
- Always compare total of payments and out-the-door price.
The three main payment inputs
- Amount financed: the balance placed into the loan.
- APR: the yearly borrowing cost shown in the contract.
- Loan term: the number of months used to repay the balance.
How dealers can reach a target payment
A target payment can be reached by changing the term, down payment, financed balance, or APR. That is why answering only 'What payment do you want?' does not define a good deal.
Ask to see the selling price, out-the-door price, APR, term, amount financed, and payment together.
Payment comfort versus total cost
A payment should fit your monthly budget, but the total transaction should also make sense. Compare insurance and operating costs, and leave room for maintenance or unexpected expenses.
Red flags to review
- The term increased without a clear explanation.
- The down payment changed from the agreed amount.
- Optional products were added to reach the presented payment.
- The written amount financed is higher than expected.