When you borrow money to purchase a car, you’ll be handed a set of keys — and potentially a sizable monthly payment. MSGCU is here to help you understand each part of your payment.
The components of a car payment
Fear not! Learning about the anatomy of a car payment is much easier than that anatomy class you took in high school. Let's break down the main elements of your car payment.
Principal
The principal is the amount of money you borrow to purchase the vehicle. For example, if you are buying a car that’s priced at $35,000, and you pay $5,000 as a down payment, the principal of your loan is $30,000.
A portion of each monthly car payment will go toward paying down the principal balance of your loan. The more you pay toward the principal each month, the sooner you’ll pay off your loan.
Interest
Interest is the cost of borrowing money from a lender, like MSGCU. It’s calculated as a percentage of the principal amount and is added to your monthly car payment. The interest rate on your loan will depend on factors like your credit score, the length of the loan term, current market conditions, etc. When you’re ready to purchase a vehicle, MSGCU is here to help with auto loan rates as low as 5.74% APR.* Learn more.
If you’ve rolled additional costs into the loan, they may also be a part of your monthly payment. This can include:
Taxes and registration
If you choose to finance taxes, registration fees, or other upfront costs of the loan, these will be included in your loan amount and will slightly increase your monthly payment. However, these costs are not itemized separately; instead, they’ll be incorporated into the principal.
Add-ons
Optional add-ons like Mechanical Repair Coverage, Guaranteed Asset Protection (GAP) insurance, and any other products that you choose to finance will also be included in your loan principal. While these may increase your monthly payment, they could also help you save in the long run.
Additional costs of car ownership
While not included in your monthly loan payment, these expenses are an inherent part of owning a car:
- Insurance. Lenders typically require you to carry comprehensive and collision coverage as part of your financing agreement, ensuring that the car is protected in case of an accident. Insurance premiums are determined by factors like the car’s value, your driving record, and your location. It’s important to shop around for the best rates and include insurance within your overall calculation of monthly car expenses. MSGCU offers our members exclusive auto insurance discounts through our partnerships with Members Home and Auto, and TruStage Auto and Home Insurance Program. Learn more and request a free quote.
- Maintenance.Your car will need regular maintenance and upkeep, which you’ll need to include in your budget.
- Repairs. It's important to have savings set aside in case your vehicle needs costly repairs. Building your emergency fund or a secondary savings account will ensure you're covered if you need the money.
- Fuel or electricity. You won’t be able to drive the car without paying for the gas or electricity needed to power it.
Are you ready to close the deal on a new car? Apply online for an MSGCU auto loan and take advantage of our competitive rates that can help save you money. Our team members make the loan process easy and are here to answer any questions you have. We can also review your budget to help you determine the right loan term for you. Contact us by phone, chat, or Video Banking, or stop in one of our 22 convenient branch offices.
Category: Finance
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