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First car · Lesson 12 of 14
Comparing two car loan offers
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Both offers use the same amount financed and the same term. The cheaper one is fees plus interest over the hold.
Build the loan once
Price, tax, down payment, and trade-in create the principal. The term is the months you picked. Offer A and offer B are a note rate and an APR on that same principal.
Insurance and fuel are not part of the winner. They are the same car either way.
The same cost rule as a mortgage
Each offer’s fee is estimated from the gap between its note rate and its APR. Interest is summed for the hold. The lower sum of fee plus interest costs less.
A longer hold favors the lower rate. A short hold favors the smaller fee. Break-even is the month the lower rate has covered its higher fees, if it does.
Dealer rate versus your bank
Put the dealer on one side and the bank or credit union on the other. Use each disclosure’s note rate and APR, not the monthly payment they advertised, so the fee is not lost.
If one offer is a different number of months, the comparison is not that deal. Change the term and read the payment and the table for the other length.
This explains how WiseCalculator treats the numbers you type. It is not a lender’s offer and it is not advice for your loan.
More in Car
- APR on a car loanThe note rate builds the car payment. The APR estimates lender fees paid up front and does not change the balance.
- A longer car loan and more interestMore months lower the payment and raise the interest you pay if you keep the loan to the end.
- Dealer quotes that leave ownership outMatch the dealer’s payment to the loan line, then add insurance, registration, maintenance, and fuel before you accept the month.