Manage repayments.

3min read
Posted 10 April 22

Your car loan repayments are made up of several different details, which add to the overall cost. These include:

  • The principal or loan itself (how much you're borrowing)
  • The downpayment or deposit on the car
  • The length of time you pay for
  • The amount you pay per installment
  • Any insurance and warranties
  • Any additional assets or securities

The total amount you spend will depend on how long you borrow and what interest rate you'll be charged.


Paying for a car.

Say you borrow $30,000, with $6,000 as your downpayment that's $24,000 to repay, plus interest. You may choose to pay back your loan over three years or over five years at 5% interest.

Over three years, that's $719.30 a month and $25,894.90 in total, with $1,894.90 in interest.

Over five years, that's $452.90 a month and $27,174.50 in total, with $3,174.50 in interest.

Although this example is fictional, it helps show the difference in pricing costs. The cheapest option would then be for payment over three years, with the five-year option less costly per month. So while you may pay less per month on a longer-term loan, overall, the cost will be higher if the interest rate is the same. 

Whether it's fixed or variable (one set interest rate or a changing yearly rate) will determine which is more expensive overall. A short-term loan may also have a higher interest rate. Those with poor credit scores may have to take a shorter-term loan over a long-term, with high interest to make up for the risk they pose in not repaying.

So before you decide on any loan, make sure you're aware of the ongoing costs. Perhaps your loan is cheaper this year but more expensive for the next four. There's no wrong answer to the best option here it all depends on what you can budget for per month.



Stop! Disclaimer!

Info and tools on the Yonda website are to be used as a guide only and do not constitute financial advice. Use Yonda as a starting point and then seek professional advice.