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Vehicle Loans Calculator in the United States

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Interesting facts in articles from the financial community.

Before buying a car you should calculate your monthly vehicle loan payment. Awareness regarding this issue will give confidence in negotiating with a borrower and allow you to choose the most suitable loan terms.

Vehicle Loans

Most car buyers use vehicle loan services. This is a common secured loan provided by a financial institution for a period of 36 to 60 months. The borrower undertakes to pay part of the principal and interest on a monthly basis.

Important! According to the law in case of nonfulfillment of debt obligations the vehicle can be impounded.

What is the Difference between Financing Dealerships and Direct Lending?

Buyers are offered two options for vehicle loans: direct or financing through dealers. Direct lending is an ordinary loan borrowed from a bank, credit union or another financial institution. The funds received in this way will be paid for the car after the contract with the dealer is concluded.

In case of a dealership financing the situation is similar but the difference is that the paperwork for the loan is initiated and completed directly at the dealership. Such financing is usually provided by dependent lenders linked to each car brand.

Note! A dealer is the debt contract holder but the practice of selling contracts to banks or other financial institutions is widespread. When they become legal successors to a debt obligation they end up servicing the loan.

Dealer financing becomes a service of choice if the buyer wants to save time or if it is not possible to utilize direct lending.

Important! Vehicle manufacturers often initiate favorable terms of lending through dealers to increase sales. Those who want to buy a new car should start by searching loans from manufacturers. Thus, you can seek a deal with very low interest rates from 0 to 2.9 %.

How Does the Vehicle Loan Calculator Work?

The buyer can not accurately calculate the monthly payment for a vehicle loan in advance but even a rough estimation will help compare the offers of creditors.

Note! Online calculators on the websites of financial enterprises enable you to determine the monthly payment fairly accurately and compare the amounts in case the loan terms change.

To use the service you need to fill in empty fields of the loan calculator with the following figures:

  • car price;
  • down payment amount;
  • trade-in amount (the cost of a car intended for trade-in), if any;
  • interest rate (you can enter and make calculations with different rates evaluating and comparing monthly payments);
  • payment terms (several payment options with different terms will allow you to choose the best one).

After filling in all the required figures the calculator will show your monthly payment. By changing down payment values, interest rate or the terms of lending you can choose an optimum amount of payments.

How Can I Estimate Interest Rates?

If you know your credit rating you can roughly estimate probable offered interest rates.

Likely interest rates when buying a new car based on average rates:

  • superprime credit score holders (781-850) may claim the rate of 3.65 %;
  • prime (661–780) 7.65 %;
  • nonprime (601–660) 7.65 %;
  • subprime (501–600) 11.92 %;
  • deep subprime (300–500) 14.39 %.

Lower interest rates are offered for new cars rather than for used vehicles.

How Do I Define the Real Cost of a Car?

A price tag (MSRP) is a starting point for the cost of a new vehicle. Almost always a buyer can expect a discount from this amount. Manufacturers' discounts also contribute to price reduction. Payment for options and “destination fee” should be included into the purchase price.

Note! To stimulate consumers demand car manufacturers offer additional discounts. In some states these discounts are taxable and in some states they are not.

In the first case the situation is following: if a car price is $40,000 with a discount of $3,000, the sales tax will be calculated based on $40,000 and not $37,000. But keep in mind that in a significant number of states discounts are not taxed.

How Can I Predict the Cost of a Used Car?

When buying a used vehicle it is more difficult to estimate the real purchase price. You should start with the price set with the seller. In this situation bargaining is appropriate.

Note! To get an idea of the “fair” price use an online price guide or view local ads for similar cars.

How Can I Estimate the Trade-in Price?

To get an idea of the trade-in price you should check websites which offer evaluation services and pricing assistance.

Important! At a price guide it is important to find information about the trade-in price not the retail price (the price at which the dealer offers a car).

At your local Car Max you can get cash deals. Similar services are provided by Vroom and Carvana online services.

Sales Tax and Fees Should Be Taken Into Account When Buying a Car

When purchasing a car the buyer is required to pay state and local sales taxes, documentation fee (which is very variable) and registration services.

Note! To estimate services cost in a particular state you can use an Internet search engine or call a dealership.

Fees

The cost of buying a car consists of a purchase price and commissions which are included in the vehicle loan financing or paid in advance. Buyers with low credit ratings have to pay fees in advance.

Commissions related to car purchases in the United States are as follows:

  1. Most states have a sales tax. Five states, namely Alaska, Delaware, Montana, New Hampshire and Oregon do not charge sales tax.
  2. Documentation fee. Dealers set a price for processing documents of title and registration in the range of $150 to $300.
  3. Charge for title and registration fees is $300.
  4. Advertising fee. This is dealer’s expenses for the car promotion. They are often included in the car price and are up to several hundred dollars.
  5. Destination fee is the cost of delivering a car from the factory to the dealership. Ranges from $600 to $1000.
  6. Insurance in the United States is strictly mandatory and is issued before other documents. When buying a car on credit full coverage insurance is obligatory (for the whole loan period). The amount can be more than $1000. Many dealers offer to apply initially for short-term insurance (for 1-2 months).

When using the loan calculator in a situation where the commission will be paid out of the vehicle loan select the option “Include all commissions in the loan”.

If, in addition to the abovementioned, a car dealer requests to pay any other commissions it is reasonable to demand justification of such a necessity.

When deciding to enter into commitments you need to consider the following factors:

  • your monthly payment should not exceed 15 % of your income;
  • an ideal loan term is at least 72 months;
  • it is advisable to make a down payment of 10 % or use GAP insurance.

You should definitely get ready for a meeting with sellers and creditors by evaluating your capabilities and getting a rough estimate of the purchase conditions that are comfortable in each specific situation.