Using an Auto Loan Calculator
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by: laurawilder
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Working out how much your monthly car payment will be is more complicated than dividing the amount of the loan by the number of months in the loan term. Interest, fees, and taxes add a hefty chunk to the total amount. When budgeting to buy a car, use an auto loan calculator to do the initial math so you can go car shopping with an accurate idea of how much you can pay for a car.
Auto loan calculators usually ask for data like the amount of the loan, the length of the loan, and the interest rate you plan to pay. A few calculators will also consider where you live, whether you plan to pay any extra on the loan to informally reduce the length of the loan, whether your old cars trade in value or a down payment will reduce the amount of the loan, and whether sales tax or fees will add to the amount of the loan. Some auto loan calculators have a "loan vs. lease" option that will compare the cost of an auto lease to the cost of a loan on the same car.
Inputting accurate answers is essential to using an auto loan calculator. Minor mistakes can add up to large variations in the amount of your monthly auto payment. When you do not know the exact answer, estimate conservatively. For example, if you do not know your likely interest rate, choose a rate at the high end of your estimated range. If you do not know exactly how large a down payment you will be able to put down, estimate the amount a little low.
Play around with the numbers, using a longer or a shorter term, a higher or a lower down payment, and so on. Get a feel for how small variations affect the bottom line. Understanding how the different parts of an auto loan work together will be a great help when you negotiate with the dealership or the bank for funding.
Also remember that lower is not always better. A $15,000 loan with 10 percent interest, paid off over three years, will cost you $484 per month, for a total of $17,424 over the life of the loan. Extending the same loan to five years will reduce your monthly payments to just $319, but you will pay $19,140 in total. Be sure to find an auto loan calculator that tells you the total amount you will pay as well as your monthly payment.
Buying a car is a big step. Start the process with the most accurate information you can get, and use an auto loan calculator to check your math and work out how much of a loan you can afford. It will remove a lot of the stress from getting auto financing. Good luck!
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