how do car dealers calculate interest rates?

Question

say 60 months at 7.00%what is the amount and how did they come up with it amount 20,000

What other numbers are they using to come up with the monthly payment. It"s not as simple as the loan amount multiplied by the interest rate devided by the # of months, ie, 20,000 X 5.99 dedided by 60=$369 but their number is about $50 higher?
I'd love to find a Toyota dealer in the NY area that has a decent interest rate. We are getting a good rate from my credit union which is several points lower than the dealer and our credit is the excellent. That doesn't seem to matter. The # of years that you finance increases the interest significantly. Could you send me the name of the Toyota dealer who has low interest rates?

Answer 1

Not exactly sure what you are asking, but if you are asking how they came up with the 7%, then it's based on your credit.

Car Dealers partner with many banks. When they run your credit, they submit your credit application to a number of banks they partner with.
As a word of caution, not all dealers will give you the best bank rate they receive, even though, ethically, they should.

Some dealerships have partnerships with specific banks so they may give you a higher interest rate so that they can meet their quota with the bank, and get a kickback.

7% for 60 months is not horrible, but if you have a credit score of 700 or higher, you could have done a little better.

Whether buying new or used, I always recommend going to a credit union or other banks to get pre-approved for a specific interest rate before you go shopping for a vehicle. That way, you will know the dealership is not trying to screw you. In addition, if you tell the dealership the interest rate you are approved for, they can, often times, beat it.

Answer 2

It is basically derived from the available markets from lenders such as banks and credit unions. This is dictated mainly by what the Federal Reserve sets their Fed Funds Rate (the overnight loan rate charged to banks). Everything else flows from that, mortgage rates, CD's, car loans, etc.

Another important variable is how easily banks can pool loans together and sell them to a 3rd party investment firm, or hedge fund. With the high level of defaults in mortgages lately, many assume the car loan market to get hit next. It has become more difficult lately for the banks to pool these loans, and therefore the rates have gone up.

It was much easier a few years ago to get a lower rate, but a lot of auto makers are having a tough time selling their '07 models so look for an auto maker giving their own rate incentive such as 0% or a little higher. This has been the case in the NY market with Jeep and Toyota recently.

Answer 3

Most car dealers will try to rip you off at every opportunity. 20,000 sounds like the price of the car. Is that the price you agreed to?

Here's a link to a web site that will calculate the monthly payment given the price and the interest rate and the term (60 months):

http://www.bankrate.com/brm/popcalc2.asp

Be very careful with car dealers.

If you can, get a loan from a credit union or bank.

Answer 4

It is 7.0% of your unpaid balance each month.