When you are planning to buy a car, it is important to do your research first. This way you can find a good car at a good price, and get a loan that works for you.
Auto Loan Payment Calculator Results Explained
To use the car loan calculator, enter a few details about the loan, including:
- Vehicle cost: The amount you want to borrow to buy the car. If you plan to make a down payment or trade-in, subtract that amount from the car’s price to determine the loan amount.
- Term: The amount of time you have to repay the loan. In general, the longer the term, the lower your monthly payment, but the higher the total interest paid will be. On the other hand, the shorter the term, the higher your monthly payment, and the lower the total interest paid will be.
- New/Used: Whether the car you want to buy is new or used. If you don’t know the interest rate, this can help determine the rate you’ll get (interest rates tend to be higher for used cars).
- Interest rate: The cost to borrow the money, expressed as a percentage of the loan.
After you enter the details, the auto loan payment calculator automatically displays the results, including the dollar amounts for the following:
- Total monthly payment: The amount you’ll pay each month for the duration of the loan. Some of each monthly payment goes toward paying down the principal, and part applies to interest.
- Total principal paid: The total amount of money you’ll borrow to buy the car.
- Total interest paid: The total amount of interest you’ll have paid over the life of the loan. In general, the longer you take to repay the loan, the more interest you pay overall. Add together the total principal paid and total interest paid to see the total overall cost of the car.
The auto loan calculator can help you budget for a car and find a deal that works for you.
How Is Interest Calculated on a Car Loan?
A car loan calculator can help you determine the total amount of interest you will pay over the life of the loan. If the calculator offers an amortization schedule, you can see how much interest you will pay each month. With most car loans, each payment is split between paying the principal (the amount you borrow) and the interest.
The amount of interest you pay each month is based on the loan’s current balance at that time. So, when the balance is higher in the early days of the loan, you pay more interest. As you pay down the balance over time, the interest portion of the monthly payments gets smaller.
You can use the car loan calculator to determine how much interest you owe, or you can do it yourself if you’re up for a little math. Here’s the standard formula to calculate your monthly car loan interest by hand:
Monthly interest=(12/interest rate?)×loan balance
Here’s an example, based on a $30,000 balance with a 6% interest rate:
= (0.06/12) * $30, 000
To convert a percent to a decimal, divide the percent by 100. For example, 6% becomes the decimal 0.06 (6 ÷ 100 = 0.06).
What Is a Good APR for a Car Loan?
The amount of interest you end up paying on an auto loan can have a big impact on the overall cost of the car. For example, a $30,000 loan paid back over 36 months at 6% interest would accrue $2,856 in interest, while the same loan paid back over 72 months would accrue $5,797 in interest.
Even a small change to your interest rate can have a big impact on the overall amount of interest you pay. For example, on a $30,000 loan with a term of 72 months, you would pay $4,787 in interest at a rate of 5%. That’s more than $1,000 less than you would pay on the same loan with a rate of 6%.
So it pays to shop around to find the best rate possible. While interest rates vary by lender, your rate depends on other factors, too, including:
- Federal Reserve interest rates: When the Fed keeps interest rates low, you pay less to borrow money.
- Your credit score: In general, the better your credit, the lower your interest rate will be.
- Your debt-to-income ratio (DTI): Your DTI shows how much of your gross monthly income goes toward paying your monthly debts. The lower your DTI, the lower your interest rate will be.
- Loan type: Loans for used cars have higher rates than those for new cars (because used cars have a lower resale value).
- The loan term: Longer loan terms usually have higher interest rates.
A good APR for a car loan would be one that is around the average.
A “good” interest rate is one that is equal to or less than the average interest rate for your credit score.
How Can I Calculate My Car Payment?
The loan calculator can help you determine the monthly cost of a loan and the total amount of interest you will pay. You can use the calculator to test different scenarios to find a loan that fits your monthly budget and the amount of total interest you are willing to pay.
The best way to lower your auto loan interest rate is to improve your credit score. If you have a low credit score, it may be beneficial to wait to purchase a car until you can improve your score.
To calculate your monthly car loan payment by hand, divide the total loan and interest amount by the number of months over which the loan is repaid.
If you took a three-month payment freeze on a loan due to a COVID-19-related financial hardship, your subsequent repayments could be slightly higher than they were before in order to make up for the missed payments.
Although you will end up paying more in interest if you take a longer time to repay a loan, you may also have to contend with a higher interest rate. Try to make a down payment if you can and go for the shortest loan term possible while still being able to afford the monthly payments. Remember that a car entails more costs than just the loan payment, such as car insurance, gas, parking, maintenance, etc.
Finding the Best Car and Car Loan for You
It is time to start shopping for your vehicle now that you understand pricing and timing. You can find the best vehicle and the best car loan rates by carefully considering your needs and then shopping based on those needs. Quickly find the best loan and vehicle for your situation with this step-by-step guide.
If you’re worried that your credit score might not be good enough to get a car loan, read our blog post “7 Tips on How to Buy a Car with Questionable Credit.”
Step 1 – Consider Your Needs
Start by making a list of your needs for your new vehicle. Include things like how many people it needs to be able to seat, whether you’ll need to tow a trailer, and what kind of technology you want it to have. Then make a separate list of the features you would like but aren’t essential.
Step 2 – Set a Budget
A budget will be useful to you before you start shopping. In general, your car payment should not be more than 15% of your monthly income. You can find cars that are above or below this number, but thinking about your budget will help you with making smart purchase decisions. If you’re unsure of what the monthly payments would be for a particular price range, use an auto loan calculator for help.
Leasing vs Buying a car is a difficult decision. Our blog “Lease vs Buy: Which is Best for My First Car” will help you make the best decision for your budget.
Step 3 – Research Costs of Ownership
As you consider the vehicle that’s right for your needs, you must consider all of the costs of ownership. Some things that can vary from one vehicle to the next include:
- Gas mileage
- Cost of insurance
- Cost for major repairs
- Vehicle depreciation
If you’re trying to decide between a few similar vehicles, compare the costs of ownership to help make your decision final.
Step 4 – Take Some Test Drives
Get a feel for the car by taking it on a test drive. You should feel comfortable with the car’s response to your driving. This will help you find a car that meets your needs and that you enjoy driving.
Before you start shopping for a new car, schedule some test drives. Take the vehicle through your typical driving experiences, such as freeway driving or rural driving. Look over the location of the various controls, listen to the sound of the engine, and even take time to listen to the stereo and sound system. Sometimes a test drive will help you rule out a vehicle you thought you’d love, and this will make your search for a new car easier.
Step 5 – Find a Loan
A car loan is a type of loan that is used to finance the purchase of a car. These are:
- Get a loan through the dealership
- Get a loan through a bank or credit union
- Get a loan through another lender, such as an online car loan company
If you get a loan through the dealership, they will try to get you to pay a higher monthly payment.
If you are considering buying a new car, you may want to look into working with a bank or credit union instead of going through a dealership. Getting pre-approved for a loan early on will help you know how much you can afford to spend.
The only time it may not be a good idea to use your credit card is when you are buying a new car. If the car you want has special financing or a large cash rebate, it may be a better deal to use the incentive than your credit card. Just be aware that sometimes these types of deals result in a higher sales price or less value for your trade-in, so you should research before you make a decision.
Best Time to Buy a Car and Get a Car Loan
If you have the flexibility, try to time your car purchase around the calendar to take advantage of dealer incentives and your salesperson’s motivation.
Choose the Right Month
The best time to buy a car is typically October, November, or December. This is because dealerships are nearing the end of their quota calendars at this time, and they are motivated to reach their annual sales goals. Additionally, dealerships are anticipating a flood of new vehicles for the coming calendar year. The current year’s model will be discounted to account for this because they need to move them out of the door.
Choose the Right Day of the Week
The day of the week you shop will affect how much you pay for your car. It is more expensive to buy a car on the weekends because that is when most people shop for cars. The salespeople are looking for new sales early in the week, so that is the best time to get a good deal.
Holidays can also bring discounts on new vehicle purchases. Three specific holidays tend to bring big discounts on vehicles, including:
- Memorial Day – If you’re going to need a car in the summer, shop during Memorial Day sales for the best price.
- Black Friday – Skip the lines at the retail stores and shop for a car instead on the busiest shopping day of the year.
- New Year’s Eve – New Year’s Eve brings many dealerships to the end of their calendar years, so you have a holiday sale working with quotas to help you get a good price.
Timing Your Car Loan
Although timing does not have a huge impact on getting a car loan, if the lender gets commissions on the loan, it is beneficial to shop for the loan at the end of the month. This way you may get a slightly better rate or faster approval.