Auto  Loan Calculator

What is an Auto Loan?

An auto loan or a car loan is a secured loan that uses the vehicle you are purchasing as collateral. Lenders offer such a type of loan both for used and new cars. The interest rates for new cars are typically lower than those for used cars because of lower risks for lenders. The interest accumulates on a balance of your loan over the loan term, and depends on such criteria as your credit score, the loan's life, the amount you borrow, and the car price.

Major Types of Auto Loans

There are several types of auto loans:

• Secured auto loans. With a borrower's inability to pay, the vehicle is used as collateral for the debt. If the borrower cannot make payments or refuses to pay, then the lender can take over the car and sell it in order to recover losses. In the legal system, a lien is an arrangement that makes such lenders' actions possible. The lender is identified as a lienholder on the title of the vehicle, which gives an opportunity to hold the car until the loan is paid off.
• Unsecured auto loans. In the absence of collateral for security, lenders are more dependent on borrowers' promises to repay their debts. Unlike secured auto loans, unsecured loans are characterized by higher interest rates.
• Simple interest loans. At the time of making a payment, a percentage interest rate is calculated on the outstanding principal. This type of loan allows borrowers to save their money in the case when they pay off early.
• Pre-computed interest auto loans. Interest is calculated for the duration of the borrower's loan and then divided into equally sized payments. As a result of this method, the precomputed interest rate is more restricted than simple interest because even if you paid down half of your loan, your monthly loan payment wouldn't change.
• Direct financing. A large number of lenders, like credit unions, bankers, and online financial institutions, provide loan services to clients who want to purchase cars from dealers or private parties. As a result of this approach, the clients can get pre-approved for a loan before shopping for cars.
• Indirect financing. Automobile dealers can arrange financing for a car purchaser by requesting loans from potential lenders. As the mediator, the dealer can add one or two percent to the interest rate offered by the lender. There are also some financial companies that are directly related to a particular car manufacturer. They offer zero percent interest and discounts.
• In-house financing. Such types of auto loans are distinguished by the fact that "buy here, pay here" dealerships not only sell vehicles but also provide loans. You can use such a service if your credit history is bad. It should be noted that borrowers have to make payments directly to the dealers, and their interest rates will be higher than other options.
• New and used car loans. Characteristics of new and used car loans usually vary depending on some factors. Unlike used cars, new vehicles are more expensive. Moreover, these loans have higher average loan amounts and car payments. Also, new auto loans are longer than those for second-hand cars. If borrowers choose new auto loans, their interest rates will be lower.
• Private party loans. If you want to buy a car from an individual seller, a private party loan is a good option. But you should take into account some things if you decide to use this type of auto loan. For example, there is an outstanding lien on the car when the seller still owes money on their own loan.
• Lease buyouts. As a renter, you usually have an opportunity to purchase the car at a specific price. A lease buyout loan allows the purchaser to pay the lender until they become an owner of the vehicle.

Why You Need an Auto Loan Calculator

The auto loan calculator helps to compute the monthly payment and total cost of an auto loan, taking into account sales tax, fees, trade-in value, etc. Also, future borrowers can calculate their approximate rate for used or new auto loans, as well as loan terms.

Monthly car loan payment usually depends on the price of a vehicle, your down payment, loan term, and interest rate, which are affected by borrowers' credit scores. Borrowers should know that the amount of interest they pay changes monthly. If you want to calculate your monthly auto loan payment, you need to divide the total loan and interest amount by the loan term.

You can use such a calculator to consider different options for car loans and determine which is best suited to your monthly income.

How to Use Auto Loan Calculator?

If you decide to obtain a car loan, you have to pay special attention to your credit score, and if it's low, you must improve it. The auto loan calculator requires some information, such as:

• Car cost - the amount you want to borrow to purchase your vehicle and to determine your loan amount;
• Loan term - number of months you have to pay back your loan;
• Type of your future vehicle - new or used car;
• Interest rate - the cost to borrow the money in percentage.

When you enter the details mentioned above, the auto loan calculator will show you the results such as:

• Your total monthly payment - money that borrowers will have to pay monthly;
• Total principal - the total amount of money that the purchaser borrows to buy a vehicle;
• Total interest paid - the total amount of interest that borrowers will have to pay during the loan period.

Some auto loan calculators offer an amortization schedule by which borrowers can see what the monthly interest rate will be. Most auto loan payments are divided into two parts: the principal (the money which clients borrow) and interest.

A percentage of the interest you pay in one month depends on the current balance of a loan. You pay more interest in the early days of the loan. The interest portion of your monthly payments decreases when you pay down the balance. Borrowers can use the car loan calculator to determine the interest they owe.

The more time borrowers need to pay for their loans, the more their interest rates will rise. If borrowers have such an opportunity, they can make down payments to get the shortest loan term, which will allow them to make monthly payments that are affordable for them. Also, you should take into account the fact that the vehicle also has costs outside of the loan payment. You have to be sure you will have a sufficient amount of money to pay for such needs as gas, car park, insurance, car service, and some others.

How to Compare Loans Using Auto Loan Calculator

If you decide to choose the best option by comparing auto loans offers, you have to pay special attention to APR, the interest rate, and the length of your loan. If you don't choose the best car loan option using an auto loan calculator, you will pay high additional interest amounts during the loan.

The duration of the loan period will also be important in considering its overall cost. The longer the term of your loan, the smaller your monthly payments will be. However, your interest will be higher during the loan period.

You need to weigh the pros and cons before you decide to make your loan term length in order to reduce your monthly car payment. Because in the end, you can have a car, the price of which is lower than your loan amount. That's why you don't need to focus only on your monthly car payment. Such striving may entail some additional expenses.

The total cost of a car loan amount usually depends on some factors, such as the annual percentage rate (APR), interest rate, and loan term. APR and interest rate from the cost of borrowing and are usually reflected in the borrower's monthly payment. The loan term shows how many months a borrower will have to pay monthly.

If you understand all the necessary parts of the loans mentioned above, you can choose the best auto loan option. To get the best auto loan, you must negotiate both the loan term and the interest rate. There are many online auto loan calculators which you can use to make all the necessary calculations for getting the desired car loan.