So I bought a car last year for 37k total and put 12k down making my loan 25k, 6 years with a 3% APR. My cars current value is 30k. From what I’ve heard and have seemed to find online is that the bank still owns 25k on the car, the 5k I’ve paid so far on the loan is theirs and doesn’t go towards my ownership of the loan/car, and I only get 5k back. Is that correct? I don’t understand why but I’m also not the most financially versed
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Your loan balance should be somewhat less than 25k after a year’s worth of payments. 30k car value less the current loan balance equals the amount of cash you’ll get if you sell.
You can think of the car loan and the car value as two separate things. The loan is just “secured” by ownership of the car, as if you default on the loan they have the legal right to recoup their cost by taking the car.
So if for example you bought a car for $30k and borrowed all of that money, no matter how much that car is worth you still owe the amount of the loan. If the car value goes to $0 then you still owe the amount of the loan, or if the car somehow increased in value to $100k you still only owe the loan amount of $30k.
Now because the car is used to “secure” the loan you can’t really do anything with it before you wrap up that loan. You can’t sell the car to your friend when you could stop making payments and the bank would take the car back, right? When you want to trade in your current car for another you need to first pay off the remaining loan before making your new deal for the new car. In your case you can sell the car for $30k but you still owe $25k so you are left with $5k after paying off the loan.
If over the course of the last year you had paid down some of your principle, that is the amount you borrowed, then that $25k you borrowed might be less now. Paying off the rest of the loan from the $30k of the car sale might leave more left over.
Unless you are dealing with a seriously shady lender that targets poor people, your loan payoff should have gone down by now. But there’s more interest paid early in the loan than later, because of something called amortization that lenders do to balance the payments over the life of the loan.
Using this [calculator](https://www.amortization-calc.com/auto-car-loan-calculator/) and the numbers you provided, after a year you should have paid about $674 in interest and paid down the loan balance by $4717.
BTW, your car shouldn’t have lost $7k in value in today’s market over the last year. Because of supply chain issues, etc., used cars have been holding their value extremely well. Not guaranteed to last, but for right now unless you have put a ton of miles on it it’s worth almost as much as you paid.
Cars plummet in value the second after you buy it, then astronomically drop when you drive it off the lot. It’s because cars only retain value so long as they aren’t suffering wear and tear.
The loan is the cost of the car brand new. If loans reflected the car’s real value, we’d only end up paying a couple thousand dollars for a 30k car.
A house, you can upgrade, update, add features. Cars . . . Nobody else wants your custom paint job, speakers, seat fabric, custom parts, etc. that stuff will actually hurt the value worse.
Unless you’re building hot rods or are refurbishing classic cars for rich assholes, there isn’t any money in car investments
Just to show you the math for 12 months of payments:
A $25k loan on a 6yr 3% APR compounded monthly means the monthly payment should be around $380. The principal (loan amount) and interest are what make up the monthly, but the ratio of how much is for what changes (the % towards interest starts higher and then goes lower). For 12 months that ~$4560 of monthly payments had ~$700 towards interest and ~$3860 towards principal. As such, the $25k loan has ~$21,140 left on principal, so if there is no pre-payment penalty, then you can make a payment of around that much (excluding any additional interest if you wait till the next month, and whatever other fees the dealership may have) and you will have paid off the loan, if keeping with the ~$380/mo for 5 more years, that is a total of ~$22,800, so an extra ~$1560 if you want to continue paying it off in 5 years instead of getting it done now.
Please check if you are on an interest only loan. That is a type of loan most shady dealers/lenders and sometimes not-so-shady ones offer to folks to make their monthly payment seem minimal.
None of the money you pay on an interest-only loan goes towards the actual principal of the car loan. Which means even after paying a significant sum, you will still owe the initial 25k to the lender, since all that you paid is only covering the interest part.
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