Are payments on 1.9% APR low?
When shopping for cars these days it seems everyone leans towards leases that are hard to understand, where costs are easily hidden, and it is hard to translate what the interest is (I discuss more about leases here). When I see good old fashioned financing deals, it is nice to know they are still out there.
If they are much easier to understand than leasing why do some many people lease?
Well, the short answer: Payments are typically lower on a lease than a purchase and it allows people to buy more car. What most forget, however, is that you don’t really own the car in a lease as you do in when financing it. Ideally, if you understand all the factors in both methods you can do better with a lease in certain situations if there is a high residual value, a low lease factor, or some other factor. Depending on your goals for the car, you could then purchase the car at the end of the lease which makes it like financing with lower payments and a balloon payment.
How to get one of those deals is a whole other topic, so leasing aside, is 1.9% APR low and what would your payments look like.
Is 1.9% APR financing good?
In general, yes. Financing rates can vary widely between car manufactures, your creditworthiness, and bank specials. Manufactures like Toyota are usually offer deals like 1.9% APR whereas manufactures like Ford often offer 0-.9% APR.
Here were just a few offered as of the date of this post:
BMW: 0.9% 60-Months
Cadillac Escalade: 0% APR for 72 months
Chevy Bolt: 0% APR for 72 months
Ford, Chevy, Chrysler all offering 0% APR for 72 months
Kia: 0% APR financing for 66 Months
As you can see a lot of manufacturers have specials that are 0-1% APR. However, it takes very good credit to qualify so unless you have a 720 or higher credit score don’t plan on getting that rate. With less than a 720 credit score, your interest rate might be increased to 1-3%, in which case 1.9% APR is still good.
Anything under 2% APR over 48-72 months is good.
So if it is good, you might be asking what is the difference in interest between something financed at 0% APR and 1.9% APR?
For comparisons let look at 10K financed over 60 months (this way you can use it as a guide to calculate different amounts)
|Interest Rate||Payment||Total Cost|
So, 1.9% apr financing is going to add $8.34 for every $10K financed and costs $490 over the term of the financing. For $20K simply double the numbers. Similarly, you can do a quick estimate of your payment at 1.9% apr. Let’s say you want to buy a $40K car with $5K down payment. The math is pretty simple, $175 X 3 + .5*175 = $612.50. Your payment for $35K financed over 60-months will be $612.50. There are tons of online calculators, but this technique is really useful to have in your head to estimate payments on the fly and know the cost and payments associated.
Hopefully, this will help you understand the differences in cost between the lower APR deals out there.
Good Luck and remember to always know before you go!