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Washington, D.C.

How to calculate a car loan online

30.06.2021
784
9 min.

Calculating your car loan monthly instalment before purchasing a vehicle can increase your negotiating ability and help choose the most proper borrowing for your budget.

How to calculate a car loan online

Car loans

The majority of people seek car loans when buying a vehicle.

Note! They work in the same way as regular secured loans from a financial institution with a standard maturity of 36 to 60 months.

The principal and interest payments must be made monthly from borrowers to car loan lenders. Borrowed from the lender but not returned money may result in the legal seizure of the vehicle.

Direct lending or dealer center financing

As a rule, two main options of financing are used when it comes to car loans: direct lending or financing through a dealership. In the first case, it is a regular loan from a credit union, monetary institution or bank. Upon signing a contract with a car dealer for a car purchasing, the loan is used by the direct loan provider to cover the new vehicle cost.

Financing from a dealership is similar in some way, except that car loans and therefore paperwork are triggered and completed via the dealership.

Note! Car loans through dealerships are usually serviced by dependent lenders that are frequently associated with a particular car brand.

The dealer keeps the contract but is may be sold to a bank or another monetary institution that is called the assignee and eventually services the credit.

Direct lending gives buyers more opportunities to turn to a dealer and the greater part of financing is provided on their terms as this puts an additional burden on the car dealer to offer a better rate. Pre-approval does not tie car buyers to one showroom and they still can appeal to another one.

Dealer center financing has fewer choices for the potential clients when it comes to evaluating purchases, although it is available to customers who are not ready to spend time for shopping or unable to obtain an automobile loan with the help of direct lending.

Rather often car manufacturers offer lucrative financial deals through dealerships to stimulate car sales. The new car market consumers should start looking for funding from automakers. It is quite common to be offered low rates of interest like 0%, 0.9%, 1.9%, 2.9% by auto manufacturers.

How to utilize the auto loan calculator

Although you cannot calculate the monthly payment for a car to a penny, a good estimate can help you take a driver's seat faster and compare different auto loan offers.

Here's the guideline how to utilize the auto loan calculator and clarify various figures that make up future instalments.

  • Car value: in this field indicate the price you think you will pay for the car after negotiation.
  • Exchange and initial contribution: enter the principal sum you are investing in a new car and also the cost of exchanging your current vehicle, if any.
  • Rate of interest: you may provide the rate you are expecting or calculate it yourself based on the credit rating.
  • Months quantity: enter the term of the loan or the expected duration of repayment.
  • Result of the calculation: it is not necessary to seek the "calculate" button. Just enter your figures and the results will be provided immediately.

Aside from seeing the results of monthly instalments you are likely to face the cold and harsh reality regarding the amount you will be paying as interest. To have a better comprehension you should check the total sum you will repay for an auto loan, excluding the initial contribution.

Important! By modifying the exchange or initial contribution amount, term or percentage rate you will realize how these factors affect your instalments as well as the loan's total cost. This method helps make comparison of different offers easier.

Estimating prices for new cars

You can use a manufacturer suggested retail price (which is also called MSRP) as a starting point. However, in most cases, it is possible to negotiate about a discount. Car manufacturer discounts can also lower the price. Please don't forget to include the options cost and also the “destination tax” that applies to all new vehicles.

Discounts on vehicles

Carmakers sometimes offer discounts on vehicles to further incentivize buyers. The discount may or may not be taxed, depending on the state. For example, if you buy a car with the value of $30,000 with a discount equal to $2,000 then the sales tax calculation will be made in accordance with the original $30,000 price and not $28,000.

Fortunately, it is not applicable in a number of the states and discounts are not taxed as well. These states include Arizona, Alaska, Delaware, Iowa, Kentucky, Kansas, Louisiana, Minnesota, Massachusetts, Montana, Missouri, New Hampshire, Nebraska, Oklahoma, Oregon, Texas, Pennsylvania, Rhode Island, Utah, Wyoming and Vermont.

In general, discounts are only offered for new vehicles due to the uniformity of each new vehicle. Although some used car dealerships offer cash discounts but this is rare due to the difficulty in real cost of the vehicle valuation.

How to evaluate the cost of a used vehicle

Evaluating the selling price is a little more difficult in case you want to purchase a used vehicle. You can start with the price asked by the seller but it is possible to negotiate a lower price. To get a fair price overview it is worth checking online guides for prices or local ads for comparable vehicles.

How to estimate the cost of an exchange

You can use websites to make evaluation and assist with pricing. When utilizing a guide for prices you need to make sure you are checking the exchange value and not the retail value (the car value set by a dealer). It may be also a good idea to get cash offerings at local CarMax or online services like Carvana and Vroom as a basis.

The ways of estimating percentage rates

In case you got pre-qualification or pre-approval for a car loan just enter the rate received from the creditor. You can also verify the rates of interest that online lenders offer. Or provided the credit rating is known, you can assess the rate that is likely to be offered according to the average ones:

Credit rating

  • Super prime: 781-850
  • New vehicle average per annum rate of interest: 3.65%
  • Used vehicle per annum rate of interest: 4.29%
  • Prime: 661-780
  • New vehicle average per annum rate of interest: 4.68%
  • Used vehicle average per annum rate of interest: 6.04%
  • Regular: 601-660
  • New vehicle average per annum rate of interest: 7.65%
  • Used vehicle average per annum rate of interest: 11.26%
  • Subprime: 501-600
  • New vehicle average per annum rate of interest: 11.92%
  • Used vehicle average per annum rate of interest: 17.74%
  • Deep substandard: 300-500
  • New vehicle average per annum rate of interest: 14.39%
  • Used vehicle average per annum rate of interest: 20.45%

Attention! Please note that the rates applied for new vehicles are lower than for used ones. At times auto finance companies even offer rates up to 0%.

Calculating the sales tax and fees

You should consider fees and taxes when calculating the total value of your vehicle. You will have to pay local together with state sales taxes, registration costs and documentation fees (which can vary greatly). You can surf the Internet or contact your dealership and ask to assess such costs in your area.

Fees

Buying a car involves expenses which are different from the original cost and most of them are commissions that can usually be included in an automobile loan financing or paid beforehand. However, customers having low credit ratings may be forced to pay in advance. Below is a list of common commissions associated with buying cars in the US.

  • Sales Tax. In the majority of US states the sales tax on vehicle purchases is imposed. Depending on the state where the vehicle has been purchased it is possible that the sales tax value is paid against the price of the vehicle. Delaware, Alaska, New Hampshire, Montana and Oregon are the states that do not levy sales taxes.
  • Documentation fees. These are fees that the dealer charges for documents processing such as registration and title. They usually cost between $150 and $300.
  • Ownership and registration fees. These are fees charged by states for the ownership and registration of a vehicle. A lot of states charge less than $300.
  • Advertising fee. This is the fee that paid by a regional dealer to promote a manufacturer's vehicle in the dealer's area. Unless collected separately, these fees are included in the vehicle price. A couple hundred dollars is the typical price.
  • Destination fee. That is a charge for transporting a vehicle from the factory to the dealer. The fee is typically between $600 and $1000.
  • Insurance. In the US, the availability of auto insurance is obligatory and is normally required prior to filing the paperwork by dealers. The complete coverage insurance is needed in case the car is purchased on credit rather than cash. The cost of this type of auto insurance may exceed $1,000 a year. One or two months short-term insurance is provided by a number of car dealers so new car owners can get proper insurance later.

If commissions are included in the car loan you need to select the checkbox "Include all commissions" in the calculator. If they are paid an advance instead, do not check this box. If a car dealer invests any cryptic special charges on a vehicle purchase, it would be prudent to require justification and detailed explanation of their inclusion.

Consider all aspects of the loan

A monthly payment is the best indicator of how a car loan affects your budget. This can give you a real comprehension on whether you can afford a vehicle. While this figure is the easiest to understand, it is not the only one to be aware of.

You also need to know the total loan and the initial contribution amount as well as the loan maturity. The general rule for each of them is the following:

  • Loan payments must not exceed 15% of your salary.
  • The loan term should ideally be less than 72 months.
  • Aim for an initial instalment of at least 10% or consider GAP insurance.

Remember that the circumstances of each person is different so these guidelines are not universal to all.

When you clarify a monthly payment, be it a quote, negotiation or special advertisement, you should make sure you know all the figures behind it. Is it suitable to have a low payment if it takes you 84 months to pay back the borrowing? Is the car value proper? What about the amount the dealership offers for your vehicle? Ask your salesperson for "external" figures and review them before making the final decision.

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