Even when you understand the terms a creditor is offering, it's easy to underestimate the difference in dollars various terms can make. Suppose you're buying a $7,500 car. You put $1,500 down and need to borrow $6,000. Compare the three credit arrangements shown in the chart at the top of page 11. How do these choices stack up? The answer depends partly on what you need.
The lowest cost loan is available from Creditor A at an APR of 14 percent over three years. If you were looking for lower monthly payments, you could get them by paying the loan off over a longer period of time. However, you would have to pay more in total costs.
A loan from Creditor B-also at a 14 percent APR but for four years-will add about $488 to your finance charge.
If that four-year loan were available only from Creditor C, the APR of 15 percent would add another $145 or so to your finance charges as compared with Creditor B.
Other factors-such as the size of the down payment will also make a difference. Be sure to look at all the terms before you make your choice.
CREDITOR APR LENGTH MONTHLY TOTAL TOTAL
PAYMENTS FIANANCE
Charge payment A 14% 3 Years $205.07 $1.383.52 $7,382 Charge payment B 14% 4 Years $163.96 $1.870.08 $7,870 Charge payment C 15% 4 Years $166.98 $2,015.04 $8,015
