Auto Loan Calculator

How To Use An Auto Loan Calculator

When you find yourself in need of a new automobile, you probably have a number in mind that you can afford for either the total cost of the car, or more likely the monthly payments. Unfortunately, financing a car means adding interest to the equation.

If you take a $30,000 car loan with a term of 5 years (or 60 months), your payments aren’t going to break down to $500 a month unless you get a 0% interest car loan. If you get a loan with a 5% interest, you monthly payments would be just over $566.

Of course, if you go through your own bank or credit union, or you initially finance through the dealership and then refinance after the fact, you could negotiate a lower rate. The important thing is that you do some research to determine how to get the car you want at a rate that allows for monthly payments you can actually afford.

The best way to do this is with a tool designed specifically for the purpose. What you need is an auto loan payment calculator to help you figure out what you’re looking for before you ever start touring car lots. How does this calculator work and how can you use it to your best advantage?

How an Auto Loan Payment Calculator Works

With an auto loan payment calculator, you can run the numbers at home to set limits and come up with a plan that works for your budget. Doing this before you visit the dealership can help you make smarter purchase decisions. You can also access our calculators with your mobile device to compute on the fly and make sure the numbers a salesman throws at you are accurate.

You will need to enter some information into your auto loan payment calculator, including:

• Loan amount
• Interest rate
• Loan term in months or years
• Title, tags and other fees

That’s really all you need to figure out monthly payments instantly. By adding interest payments to the initial loan amount and breaking costs down into a set number of monthly payments (say, 60 over the course of 5 years), you can quickly and easily find out how much your monthly payments will be, and whether or not you need to negotiate a lower cost for the car, a lower interest rate, or a longer loan term. If you can afford a bit more, you may also be able to reduce the loan term and pay off your car loan faster, eliminating some interest payments in the process.

Reasons to Use an Auto Loan Payment Calculator

Using an auto loan payment calculator puts you in charge of what you’re spending. You won’t have to rely on a salesman to crunch numbers for you when you can quickly do it on your own with the aid of this handy online and mobile tool. Whether you accept the terms offered or you decide to seek a better purchase price or interest rate elsewhere, you’ll have the information you need to make a wise financial decision.

How Do Banks Determine My Monthly Car Payment

Like any other loan, there are five key factors that determine how much you pay every month. It’s important to shop terms around when comparing lenders, since a slight change to any of these factors can drastically change your monthly payments and total loan costs, even for the exact same size loan.

Note: this list does not take into account “hidden” monthly costs of your vehicle, such as maintenance, repairs, taxes and gas. These extra payments can exceed your loan servicing costs, depending on how much you drive, and should be calculated before you even take out the loan to make sure you can afford the vehicle’s long-term ownership.

Principal

This is the amount you’re borrowing after any down payment, but before interest. Thanks to the amortization schedule lenders use to maximize interest rates, you don’t pay down principle at an even rate every month. The first year has the lowest principle payments, with repayment rising every year until the loan is paid off.

Loan term

The shorter your loan term, the higher your monthly payments but the less you will pay in total interest. The longer your loan term, the lower your monthly payments but the more you will pay in total interest.

For example, a $20,000 car loan at 6% APR would cost you:

• $608/month, with a 3-year loan and $1,904 total interest. Versus only:
• $387/month with a 5-year loan and $3,199 total interest

Interest rate

When calculating interest, be sure to use the annual interest rate and not the “comparison rate”, which includes one-time fees and charges.

Repayment schedule

Many loans will give you the option to make repayments monthly, bi-monthly, weekly or even sometimes daily. Due to compound interest working against you, the more payments you make, the lower your total interest will be.

Insurance

Since your lender is holding the title to your vehicle, they will require comprehensive insurance and not just basic collision protection. With most loans, allowing insurance to lapse has the same negative effects of missing loan payments.