How to Understand Your Auto Loan

In celebration of 50 years, WEOKIE is offering some special rewards to our valued clients! If you finance an auto loan* with us—or bring us your current auto loan from another lender—you will receive $50 cash back for every $5,000 borrowed, up to $250! 

Before you apply for a new auto loan or look to refinance one, it is important to understand what goes into these kinds of loans.

We are breaking down the basics of an auto loan to ensure that when you work with us here at WEOKIE Federal Credit Union, you are fully informed about all of the important terms. 

Downpayment

Your downpayment is the amount of cash you pay on the day you take out your car loan. This reduces the amount you are financing, which impacts your loan in several ways. 

You may get a better interest rate if you are taking out less money, but you will certainly pay less over the lifetime of the loan if you make a larger downpayment. Taking out a lower amount will also qualify you for more loans because you are not increasing your debt-to-income ratio as much. 

According to Nerd Wallet, a good rule of thumb is to have 20 percent of your car’s cost available for the downpayment.

Principal

The principal is the amount you are financing for the loan. This is one of the easiest things to calculate when it comes to taking out a loan. Simply subtract the downpayment from the total price of the car, and you will be left with the principal. 

If your car’s sticker price is $22,000 and you make a downpayment of $4,400, your principal will be $17,600. 

Keep in mind that there also may be fees associated with your new loan, and that will increase the total cost of your vehicle. 

APR

APR stands for annual percentage rate. This is, essentially, your interest rate. It is calculated as a yearly percentage, and it represents the amount of money you are paying in interest charges in order to take out the loan. A higher APR means you’ll spend more on interest as you pay back the loan. A lower APR means you’ll spend less. 

Your APR is determined by several factors, but two of the most important are your credit score and your debt-to-income ratio. 

Loan Term

The term of your loan is the amount of time you will have to pay off the loan, assuming you make all of your monthly payments in full and on time. 

This is typically calculated in months. Many professionals recommend avoiding loan terms that go over 60 months. A longer-term loan can get you a lower monthly payment, but it often comes with unintended negative consequences.

Monthly Payment

Your monthly payment is the same every month for the term of the loan. 

It includes your principal, your APR and any additional financing fees. The only time your monthly payment should go up or down is if you owe late fees or if you refinance your loan at some point. 

Total Cost 

The total cost of your car is not the sticker price or the negotiated price. It is what you will end up paying out of pocket when you combine all of these relevant factors: your downpayment and your monthly payments, for the life of the loan, including interest rates and fees. 

This is a number that you often have to calculate for yourself during the car buying process, although we can certainly help you figure this out if you give us a call! 

Are you prepared to take out an auto loan?

We recently published a useful eGuide about how to make room in your budget for the costs associated with an auto loan. 

Whether you are working on your downpayment or trying to figure out how you will afford monthly payments, check out our eGuide to learn about things you can do to prepare for an auto loan. 

Download the guide today to learn more, or give us a call at (405) 235-3030 or 1 (800) 678-5363 to discuss and strategize your financial goals!

*See a WEOKIE rep for details. Federally Insured by NCUA

• Refinancing or financing your auto loan is as easy as visiting www.weokie.org to complete the online application. You may also visit one of our locations, or call 235.3030 or 1.800.678.5363. Offer is subject to credit review. Adequate collateral and acceptable term must be provided for all loans. Your annual percentage rate is based on your credit history. Not to be combined with any other offers. Proof of income may be required. Existing WEOKIE loans are not eligible for refinancing. Membership eligibility is required. Offer expires December 31, 2019. In order to receive the cash reward the loan must be a minimum of $5,000. Cash reward for auto loans is capped at $250. The auto loan cash rewards will only be paid on loans closed at a WEOKIE location. Your rates may vary if you are active military.