1. Introduction to Car Loans

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Welcome Back!

In this activity, you will learn about financing a car.

You will use a spreadsheet to calculate loan costs and help you make decisions about what kind of a loan you might be able to afford.

Have you ever seen an advertisement like this?

Chances are, you probably have.

But what does all this mean?

Say you are in the market for a new or used car.

You find a car you love, but you can’t afford to buy it out of pocket.

Few people can!

In fact, 85 percent of new and 54 percent of used car purchases are financed.

Financing means that you borrow money from a lender and pay them back in monthly installments.

Not only do you pay back the principal, or the amount of money you borrowed; you also pay an additional percentage of that principal to the lender for using their money.

This additional percentage is called interest.

Different institutions offer different interest rates.

You can get car loans from car dealerships, banks, credit unions, online financial service sites, and other financing companies.

Several factors determine the auto loan you can get.

They can lead to very different payments for you, the buyer.

The three major factors in financing a car include: The amount of money you borrow The interest rate, also called the annual percentage rate or APR; and The term of the loan, or the time it takes you to pay it off--usually between 3 and 6 years.

Your monthly payment varies depending on how you adjust these factors.

Sometimes having a lower monthly payment actually means that you pay more overall!

In this activity, you will create a spreadsheet like this one to help you determine how much money you could afford to borrow when buying a new or used car.

It isn’t always the best choice to borrow the maximum amount that a lender will loan you!

Spreadsheets can help you determine how much money you could actually afford to borrow.

On the spreadsheet, you will select an interest rate, or APR.

And a loan term….

Then, convert these to monthly amounts.

You will also specify a price range for the car you will research.

Once you have this basic information, you will calculate and record: A table of possible loan amounts--that is, how much money you would consider borrowing to buy a particular car; Your monthly payment; Total payments, or the total amount you will spend on the car over the entire loan term; And the amount of money you will spend on interest.

Once you set up your spreadsheet, you will research new or used cars to get an idea of what they cost.

On your spreadsheet, you will calculate the monthly payment, total cost, and interest cost for each car you find.

After you research car options, you can easily change the rate and loan terms in your spreadsheet to compare costs.

This will help you determine which car and car loan would work best for you--hypothetically, of course!

To begin, go to sheets.google.com/create to start a blank spreadsheet.

Name it “Loan Amount Chart.”

Then, move on to the next video to start calculating costs.

Now, it’s your turn Go to sheets.google.com/create to start a blank spreadsheet.

Name it “Loan Amount Chart.”

Then, move on to the next video.


  1. Go to sheets.google.com/create to open a blank spreadsheet.
  2. Name it "Loan Amount Chart."