Summarize the following:
The amount you borrow is referred to as the principal amount. Your principal amount has several components. The formula for the principal amount of your car loan is (Purchase price) (rebates) (cash down payment) (trade in value). A car purchase will also include fees and sales tax. Those two amounts are typically included in the principal amount. A rebate is a fixed amount of money paid to the buyer for the purchase of a particular vehicle. Rebates serve as an incentive to make the purchase. In most cases, the purchaser uses the rebate to reduce the principal amount of the loan. A cash down payment is paid by the purchaser. You may also trade in a vehicle- usually the car you are replacing. A trade in is something you sell as partial payment for something new. In this case, the value of the car you trade in reduces the purchase price on the new vehicle. Assume you're buying a car for $20,000. The manufacturer provides a $2,000 rebate. You pay $3,000 as a down payment, and trade in a car valued at $5,000. The principal amount of your loan is $20,000 - $2,000 - $3,000 - $5,000, or $10,000. The loan term is the period of time that the loan will be outstanding. Most new car loans have a term of six years. The longer the term, the more interest you will pay on the principal balance. The interest rate will be stated in your loan agreement. For car loans, the interest rate is commonly referred to as the Annual Percentage Rate, or APR. Your interest rate multiplied by the outstanding principal amount is the interest you owe for a particular period of time. Assume that your principal amount is $10,000. Your annual interest rate is 6%. You want to calculate the interest you owe for the month. Your interest rate for one month, also known as your monthly interest rate, is (6%/12 = 0.5%).
Understand the amount you are borrowing. Determine the term of your loan. Compute the interest owed on the loan.