1. What is the Finance Cost Equation?

The Finance Cost equation calculates the total cost of financing a car by comparing the total payments made to the principal amount. It helps determine whether financing or buying outright is more cost-effective.

2. How Does the Calculator Work?

The calculator uses the Finance Cost equation:

Where:

• \( Total\ Payments \) — Sum of all payments made during financing period ($)
• \( Principal \) — Original amount borrowed or car price ($)

Explanation: The equation shows the additional amount paid when financing compared to buying outright.

3. Importance of Finance Cost Calculation

Details: Understanding finance costs helps consumers make informed decisions about car purchases and compare different financing options.

4. Using the Calculator

Tips: Enter the total of all payments you'll make during the financing period and the principal amount (car price). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's included in total payments?
A: Include all monthly payments, down payment, and any other financing-related costs over the entire loan period.

Q2: What's a good finance cost?
A: Lower is better. Compare with potential investment returns if you had bought outright instead.

Q3: Should I include trade-in value?
A: No, this calculator focuses on the financing costs. Trade-in would affect the principal amount.

Q4: How does this compare to lease costs?
A: This calculates financing costs. Lease calculations are different and include depreciation.

Q5: Does this account for opportunity cost?
A: No, this is a simple cost calculation. For full analysis, consider what you could earn investing the money instead.