The True Cost of Your Next Car

📋 Key Takeaways

• • The 20/4/10 Rule: 20% down, 4-year max term, total car costs under 10% of gross income
• • Credit score 750+ gets ~4.5%; below 600 gets 12%+ — a 100-point gap costs thousands
• • 72-84 month loans cost $2,500+ more in interest than 60-month on the same car
• • Get pre-approved from a credit union before visiting dealers

💡 Did You Know?

• • Average new car payment: $738/mo; used: $569/mo (Experian 2024)
• • 25% of trade-ins are underwater — owing more than the car is worth
• • Credit unions offer rates 1.5–2% lower than banks (NCUA)
• • Dealership financing markup can add 1–3% to your rate (CFPB)
• • Cars depreciate ~20% in year 1, ~15% annually after (Edmunds)

⚙️ How It Works

• • Monthly Payment = P × [r(1+r)^n] / [(1+r)^n − 1] where r = APR/12, n = months
• • Loan Amount = Vehicle Price + Tax + Fees − Down Payment − Net Trade-in
• • Amortization — Early payments are mostly interest; principal share grows over time
• • Negative Equity — When you owe more than the car's depreciated value

✅ Tips

• • Get pre-approved from a credit union before visiting dealers
• • Aim for 20% down and 4-year max term (20/4/10 rule)
• • Avoid 72+ month loans — compare total cost, not just monthly payment
• • Extra principal payments save interest and shorten the loan

📊 Auto Loan Rate by Credit Score

❓ Frequently Asked Questions

📚 Sources

• • Experian — State of Automotive Finance
• • Federal Reserve — Consumer Credit
• • Edmunds — Car Depreciation & Values
• • Kelley Blue Book — Vehicle Pricing