Car Loan Calculator

Comprehensive Guide to Auto Loan Calculations

Understanding Auto Financing

When you apply for an auto loan, a lender (be it a bank, credit union, online lender, or car dealership) provides a lump sum of money to pay for the vehicle you're buying. In exchange, you receive the vehicle to drive while making monthly loan payments until you fully repay the loan. This process might seem straightforward, but it's important to remember that different aspects of a car loan can significantly impact what you will pay monthly and over the life of the loan. These aspects include the loan's interest rate, the term of the loan, the price of the vehicle, and any down payment or trade-in value you might have.

How to Use our Auto Loan Calculator

Our auto loan calculator is a valuable tool that can help you estimate your monthly car payment and total loan cost based on the information you input. This tool can provide a clear picture of your potential financial commitment, allowing you to plan accordingly. Here's a detailed breakdown of the information you can input into an auto loan calculator:

  1. Price of Vehicle: This is the price you expect to pay for the car. For new cars, start with the vehicle's sticker price (also known as the Manufacturer's Suggested Retail Price or MSRP). Subtract any savings from dealer negotiations or manufacturer rebates, and then add extra costs such as vehicle options and the "destination fee" charged on new cars. For used cars, estimating the sale price can be a bit trickier. Start with the seller's asking price, but remember that you may be able to negotiate that lower.
  2. Interest Rate: The interest rate is the amount you'll pay each year to borrow money, expressed as a percentage. This rate can vary based on several factors, including your credit score and the current market rates.
  3. Loan Term: This is the length of time you have to pay off the loan, usually in 12-month increments. Common terms are 24, 36, 48, 60, 72, or 84 months. The length of the loan term can significantly impact your monthly payments and the total amount of interest you'll pay over the life of the loan.
  4. Down Payment: This is the total amount of cash you plan to put toward the car. A general rule of thumb is to put down at least 20% for a new car and 10% for a used car. However, any size down payment can help lower your monthly payments and reduce the amount of interest you pay over the course of the loan.

Factors Affecting Your Loan

Several factors can affect your auto loan, including your credit score, loan amount, loan term, and down payment. For instance, the average APR on a new car loan with a 60-month term was 7.48% in the first quarter of 2023, according to the Federal Reserve. However, your credit scores and other factors can significantly affect the interest rate you're offered. It's important to understand that lenders consider your creditworthiness when determining your interest rate. A higher credit score generally leads to a lower interest rate, while a lower credit score can result in a higher interest rate.

Considerations When Applying for a Loan

Before you get auto financing, it's important to create a budget and figure out how much car you can afford to finance. Tools like our auto loan calculator can help you get an idea. But don't forget to consider the total cost of owning a car, which can include expenses like auto insurance, fuel, and maintenance!

While it may be tempting to stretch out your loan term to bring down your monthly car payment, this could result in you paying thousands more in interest over the life of the loan. It's crucial to balance your desire for a manageable monthly payment with the goal of minimizing your total interest cost.

Shopping around and getting loan estimates from several lenders can help you find a loan that fits your budget. While getting financing through a dealership can be convenient, you could end up paying a higher interest rate because of dealer markups. Consider getting quotes from different types of lenders — banks, credit unions, and online lenders — to do some comparison shopping.

Applying for prequalification or to get preapproved for a car loan can help. Getting prequalified for an auto loan or preapproved isn't a guarantee you'll get a loan, but it can give you a sense of the loan amount, rate, and terms you might be able to get. Just keep in mind that those loan terms could change once you submit your complete auto loan application.

If you're struggling to get approved for a loan, consider finding a co-signer, which may help increase your odds of approval. You could also save up for a larger down payment or buy a less expensive car and work on improving your credit in the meantime.

Final Thoughts

Understanding how auto loans work and how to calculate your potential monthly payments can help you make informed decisions when buying a car. Use an auto loan calculator as a tool to estimate your monthly payments and total loan cost, and remember to consider all factors that can affect your loan. By taking the time to understand the ins and outs of auto financing, you can ensure that you're making the best financial decision for your situation.

Frequently Asked Questions About People Considering an Auto Loan

What is the difference between pre-qualification and pre-approval?

Pre-qualification is an initial evaluation of your creditworthiness, giving you an estimate of the loan amount, rate, and terms you might qualify for. Pre-approval is a more detailed process where the lender checks your credit and gives you a more concrete offer.

Can I get an auto loan with bad credit?

Yes, it's possible to get an auto loan with bad credit, but the interest rate will likely be higher. Some lenders specialize in auto loans for people with bad credit.

What happens if I miss a payment on my auto loan?

Missing a payment can result in late fees and can negatively impact your credit score. If you miss multiple payments, the lender could repossess your vehicle.

Can I refinance my auto loan?

Yes, if interest rates have dropped or your credit score has improved since you took out your auto loan, you may be able to refinance to a lower interest rate.