Calculating Monthly Installments for Bad Credit Auto Loan

When applying for a bad credit auto loan, the borrower should be aware of the fact that the rate of interest charged for these loans is higher than that of conventional loans. Therefore, it is best to pre calculate what sort of monthly installment can be afforded in these loans. The expected EMIs can be reduced by either decreasing the loan amount (going for used cars or cheap cars), increasing the loan term or by increasing the down payment involved.

For example, let the auto loan amount for the new loan be around 9000 dollars (it is best to keep it around this limit to ensure that monthly installments could be afforded). Now, let the down payment be 1000 dollars and the rate of interest charged be 15 percent (it could be more). The term of the loan is four years. Now, the loaned amount after reducing down payment becomes 8000 dollars. The interest charged for a single year becomes 1200 dollars (15 percent of the loan amount). The interest for total term becomes 4800 dollars. Now, the borrower has to pay 12800 dollars over a span of 48 months. Therefore, the monthly installment becomes around 267 dollars every month. If this amount seems payable then the applicant should go ahead and get the auto loan. If the EMI seems high, then the term can be increased, the down payment can be increased or the finance amount could be reduced.

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