I don't understand my car payment.

[alarimer]

I think I might have gotten ripped off by the dealer and/or lender. Part of my payment each month (about $100) goes to interest. So far I have paid over 3k in interest alone. I THOUGHT that the rate was 8.7% and I thought it was calculated by adding the amount borrowed plus the percentage rate times the amount borrowed and then that total was divided by the number of payments. I hate to confess my ignorance on this but I believe my other car loans were figured that way. Now it looks like my effective interest rate over the life of the loan will be 31%! That cannot be right.

I am confused and hopelessly ignorant, apparently.

[lizziegrace]

1. The lender gets most of the interest early in the loan

you pay more interest in the first few years and less in principal.

[alarimer]

6. I saw that.

I think I understand it now. Something just wasn't adding up earlier.

[GOPisEvil]

2. Ask to see an amortization table.

You will find that, as lizziegrace said, interest is front-loaded.

[Wcross]

3. That sounds about right for a car loan- check out the calculator.

http://www.bankrate.com/brm/auto-loan-calculator.asp

[JVS]

4. sounds about right

[Telly Savalas]

5. Without seeing all of the numbers, my guess is that the 8.7% is the annual interest rate

versus your 31% which is represents total interest payments as a percentage of the purchase price.

[alarimer]

7. Yes I figured that out.

I don't even want to think about how much of my total student loan payments was interest. :scared:

Those took me 15 years to pay off. I wish they hadn't been necessary.