Car financing is a great way to own a car without necessarily having to pay for it upfront. There are various car financing services that have good interest rates on loans granted. No need to delay on that dream car you’ve always wanted to have, an auto loan will bail you out. However, when choosing an auto loan option, it’s important to know how the loan payment will be calculated.
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Why You Need To Know How Auto-Loan Will Be Calculated.
Knowing how car loans are calculated will let you know the best car finance offer to take. The interest rates and loan term for various car finance deals differs. In addition, knowing how to calculate the monthly installments you have to pay will let you know if it fits your budget.
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Terms Used In Calculating Auto Loan Payment
Downpayment
The downpayment can represent any per cent of the overall cost of the car, it depends on the agreement between you and the lender. Down payment is the amount of money you pay out-rightly that covers part of the cost of the car. It also signifies your commitment to fully purchase the car. The more the amount you pay as a down payment, the lesser the amount of money you have to pay as monthly installments and vice versa.
Loan Term
The loan term refers to the total duration of time you are expected to pay the total amount. It varies depending on where you get the loan. either from a bank, a cooperative society or a car dealer.
The longer the loan term, the longer the amount of time you have to pay up in monthly installments.
Interest Rate
The interest rate is actually the cost or the extra money you have to pay for taking a car loan. Simply put, it’s the amount you have to pay for borrowing the money. The higher the interest rate, the more you have to pay in monthly installments.
Also Read:
- How To Get Vehicle Finance In Nigeria 2021- Top List Of Auto-Finance Companies
- List Of Banks Offering Vehicle Finance In Nigeria
- Buy A Car And Pay In Monthly Installment Guide In Nigeria
Monthly Installment
The amount you have to pay in monthly installments depends on the interest rate, the cost of the car and the estimated loan term.
How To Calculate Auto Loan Payment
While you can easily calculate your auto loan payment with the use of the Auto Loan Calculator, it is still essential you know how to work it out yourself. You don’t have to be a Math Guru to calculate auto loan payments; you just simply need to input the corresponding figures using the right formula.
For instance, if you are buying a foreign used 2016 Toyota Corolla which costs about #12million if the down payment is 20%, then you are paying #2.4million upfront. This means you are left with a 9.6million to complete payment. The remaining #9.6million has to be paid in four years at a flat interest rate of 5% per annum.
From the above example:
- Loan amount= 9.6 million NGN
- Interest rate = 5%
- Loan term= 4 years
FORMULAS
Your total interest = interest rate/100 x loan amount x loan term
Your monthly interest = total interest / (loan term x 12)
Your monthly installment = (loan amount + total interest) / (loan term x 12)
- Loan term= 4 years
- Interest rate= 5%
- Loan amount = #9.6 million.
- Total interest for 4 years= 5/100 X #9.6million X 4 = #1.92million
- Your monthly interest = #1.92 million/ (4 X 12) = #40,000
- Your monthly installment = (#9.6million + #1.92million) / (4 X 12) = 240, 000 NGN
This means you have to pay 240,000 NGN every month for a period of 4years to be out of this loan debt. Then, you can bold call that car yours.
You can apply this formula in paying for any car you desire to buy in monthly installments.
Where To Get Auto (Car) Loans In Nigeria
There are various car financing services in Nigeria. You can get affordable car loans from Banks, corporate bodies, or reputable car dealers. Generally, getting a loan from a bank requires that you have an account with them. In addition, you will need a proforma invoice before an auto-loans from a bank will be approved. A proforma invoice is a draft invoice that shows that you have shown interest in the car and the car price.
Here are a list of banks offering affordable auto loans in Nigeria:
- FIRST BANK
First Bank Nigeria offers car loans for purchasing brand new cars from car dealers approved by First Bank. The requirement is that you have employment and an account with them. Cars purchased can be for both personal or corporate use.
- UBA
United Bank Of Africa is another bank that offers affordable car loans to Nigerians. The Interest rate is not overwhelming. UBA will only approve your car loan application if you have an account with them and a verifiable means of the monthly payment.
- FCMB AUTO LOAN
If you are an entrepreneur, FCMB is one of your best bets to get a car loan application approved. You just need to prove a bank statement that shows you are buoyant enough to repay the loan. Car loans are for personal use only and only cars from vendors recognized by the bank will be financed.
- STANBIC IBTC VEHICLE AND ASSET FINANCE
Stanbic IBTC offers a flexible payment plan for car loans you get from them. In addition, you can select any car of your choice from the bank’s authorized car vendors. All you need to access this loan to show proof of your income, have an account with Stanbic IBTC Bank and present a proforma invoice.
Other Banks that offer reliable car loans in Nigeria include:
- Guaranty Trust Bank
- Zenith Bank.
- Fidelity Bank
- Access Bank
Tips To Get The Best Car Loan Deal In Nigeria
Make an extensive research
Don’t be in a haste to jump on the easy-come finance option you find. Do your homework to find out about various car finance services, check out their interest rates, and the loan term and see if it works for you.
Scrutinize the interest rate
The interest rate is one of the most important factors to consider when settling for a car loan. This is because, if the interest is too high, you will be spending a whole lot on that car, which might not be necessary. It’s important you don’t just take your car loan provider’s word for the final concerning the interest rate. Take due diligence to calculate the interest rate yourself by following the steps itemized above.
Don’t sign any paperwork in a hurry
Sealing the deal on a car loan offer will require that you sign some papers. Don’t be in a hurry to sign the papers without first carefully going through them again. You need to be sure the agreements stated in the paper are in your favour as well. If you need more time to read the documents, then kindly ask for it. If your car loan provider puts pressure on you to sign in a hurry, that might be your cue not to accept the loan. Bear in mind that whatever you sign in the paperwork represents a legally binding deal between you and the lender.
Beware of conditional loans
Conditional loans are loans whose terms can be changed at any time. This is highly risky. Taking a loan and owning a car is enough risk, you don’t have to complicate that by taking a loan that the terms can alter a few years or months down the line. You never can ascertain if those term changes will be in your favour; hence beware of conditional loans.
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