STEP 1: Decide on a make and model. Visit truecar.com or Edmunds.com to find
the price of the car you would like to buy; then record it here.
Total purchase price: $
Make/Model.
Year
STEP 2: Determine how much money you will need to borrow. Subtract the
money you have for a down payment (the amount you give to the dealer on the
day of purchase) from the total purchase price. For this exercise, imagine you
Grave saved $5,000 for a down payment. The resulting total is the loan principal;
record that amount here and in the chart below.
Loan principal: S
G
Extra Credit
STEP 4: Calculate your monthly payments and total amounts paid. Use the
formula for loan amortization below to figure out how much each payment will
be. "Amortization" means paying off the loan in a series of equal installments.
You'll need to know the amount of the loan, the monthly interest rate, and the
number of months you'll be making payments in order to make the calculation.
A=P*(r(1+r) {n})/((1+r)^{n}-1).
Amonthly payment
the principal
interest rate per month, or the yearly interest rate divided by 12
n= number of months
More Questions to Ask When
Buying a Car:
What's the gas mileage? Cars with a
higher gas mileage require less fuel.
Why do you need a car? A long
commute or a big family could affect
your choice.
What's the resale value? Some used
cars are more desirable than others-
visit kbb.com to find the resale value
of yours.
STEP 3: Get quotes from several lenders. The term and interest rate of the loan
will vary and both of these factors will affect your monthly payment. (For this
exercise, pretend that you have received the rates below.) Scenarios - This may influence how much debt
How long do I plan on needing a car?
you decide to take on.
Can I find a better price? Costs.
vary-do your research to get the
best price.

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