Buying a Car
There are three variables, or numbers, that are used to calculate your car payment. They are ________________, __________________, and
___________________. You can play around with these numbers to get the lowest possible monthly payment but you will pay more in interest.
This packet will explore some of these basic tradeoffs. As a general guideline, your car payment should be ______ percent of your monthly take
The first consideration that comes into play is your credit score. Your credit score is based on how well you have paid your bills and any
money you have borrowed in the past, as well as how much you have on your credit cards. Banks use a tiered finance system – the better your credit
score, the better risk you are for the bank, and the lower the interest rate you’ll be able to get.
Suppose you need to borrow $12,000 for a car, and will pay it back over five years. Today, if you have an A credit score you could get a rate
of about 5.99%, a B credit score and your rate will be about 6.99%, a C credit score and your rate will be about 10%. If your credit score is below a
D you will probably not be able to get financing from a bank. There are car dealers who will get you into a car, but you’ll pay a rate of about 20%, or
1. Go to the website www.bankrate.com. Click on the Calculators tab and select Auto Payment Calculator. Complete the following calculations for
a $12,000 loan for five years.
Credit Score Interest Rate Monthly Payment
Total Cost of Car
2. Make a bar graph, with the interest rate on the x axis (along the bottom), and the amount of interest paid on the y axis (along the side). As you
can see, getting the best interest rate you can is important. Call your bank, AAA, credit union, etc. before g