Loans, Insurance & credit card information

Before you start shopping for a new car, it is always wise to calculate your auto loan payment beforehand. You must know in advance that how much you can afford to pay every month for your car. Remember, it is not just the monthly installments, but you are strongly recommended to consider other expenses as well, such as fuel charges, auto insurance charges, and other such things. So, do your budgeting thoroughly. If you don’t have a reasonable point of reference on your financial affordability, you will be trapped badly by those professional sales sharks waiting for you a car dealership. Following is a brief rundown on how to do your maths in this regard.

Average Price Of The Car
When it comes to making calculations about your auto loan payment, the first thing that you have to do is to find out the average price of the vehicle you are considering purchasing. You must know a solid dollar figure that how much your dealership is going to charge you. To demonstrate the budgeting strategies, we will assume this average price as $10000.

Actual Amount Of Loan
Once you know the purchase price, you can now deduct the amount that you are going to pay as a down payment. If you already have an old car, which you are going to exchange for the new car, you should subtract the value of that car also from the purchase price. This will give you the final amount that you want your lender to finance. Let’s say you deduct $2000. So, the actual amount of loan in our case is $8000.

Sales Tax
Sales tax is another important factor to consider while you are doing your calculations for auto loan payment. If you don’t want to pay the sales tax on your car purchase from your own pocket, you should add this amount to the actual amount that has to be financed. Here, it is important for you to keep in mind that you have to calculate the sales tax on the actual price of the car (before deductions). If the sales tax rate is 8%, it amounts to $800. So, the total amount that you want the lender to finance is $8800. Think about any other expenses that the dealer likely to charge. Add all those charges to this amount to get a final figure.

Interest Rate
Estimate the rate of interest that you are likely to pay on your loan. The interest rate can be very low if you have a very good credit score. On the other hand, if you have a poor credit, the rate can be much higher. If you have bad credit, you might not even be offered a loan. So, study this aspect wisely. For the sake of example, let’s assume the rate is 10%.

Loan Period
The last thing that you have to consider while calculating auto loan payment is the period of the loan. In general, the period varies from 60 months to 84 months.

Now, you can use a calculator to find out the exact monthly auto loan payment that you will have to pay.

Before you visit your local car dealer, you are strongly recommended to figure out the amount of auto loan interest that you are very likely to be charged. Don’t accept any financing offer before you do all your calculations. You must know how the car loan is going to affect your finances. The amount of interest plays a major role in this regard. It is very important for you to understand that there is no “exact” way to calculate this amount because every company follows a different method for this. Regardless of how exciting deals these companies have to offer, they sometimes can be very cruel in charging the interest rates. You have to be very careful because the inside story might be very different from what they advertise. The following information will help you how to do your calculations properly.

The Actual Amount That The Bank Is Financing
When it comes to calculating auto loan interest, the first thing that you have to do is to figure out the actual amount that the lender has agreed to finance. Write down this amount on a paper. Don’t do verbal calculations. You will end up reaching nowhere. Write down everything on paper so that you know where you are heading to. The amount the bank is financing is the principal amount. In most cases, lenders require the applicants to make a certain amount of money as down payment. You don’t have to pay interest on this amount. In financial terms, the down payment is often termed as equity contribution. You have to calculate the interest on the actual principal amount.

Rate Of Interest
The next thing that you have to write down is the rate of the auto loan interest. You can give a call to your lender to find out the rate. Alternatively, you can request a loan quote from the lender. The quote document will mention everything on it, including the amount of loan, the amount of down payment, the rate of Interest, the period of loan, and the amount of monthly payment along with other details.

Duration Of The Loan
In order to calculate the auto loan interest, you must also know the duration of loan that you are willing to opt for. The loan term can range from just two years to as long as seven years. In some exceptional cases, it can be much longer period than that also. To make your calculation easy, you must convert the number of years into number of months. For example, if the tenure is 5 years, the number of months is 60.

Use Calculator
These days, almost every lender has their official website and they provide a free online auto loan calculator for this purpose. You can use this calculator to find out how much amount you will actually be paying as interest.

Overall, it is always wise to know beforehand that how much exactly the car is going to cost you. For that, you must learn how to calculate the amount of auto loan interest.

Monthly Payments

Generally the payments for a car lease are lower when compared to auto loans. This is due to the fact that in a lease, your payment is only for the amount of the vehicle you use. You may lease a car worth $20,000, for which the dealer decides the value to be $12,000 after three years. You will then only pay $8,000 in addition to a finance fee for the period of three years.

Purchase Price

However should you buy the same vehicle with auto loans for three years, you end up paying the entire $20,000 over three years. The main disadvantage of leasing is that once the three years are over, you return the car to the dealership and are left with nothing even after three years of making payments. On the other side, if you buy, you will own an asset that you can sell or continue to use without having to make any more payments.

Lower or No Down Payment

It often happens that a car lease may require a lower down payment than auto loans. This is particularly the case when financing your car through a bank. Dealers sometimes offer car leases that require down payment’s amounts as low as $1,000. This may prove to be a great deal particularly when it’s an expensive luxury car that you desire to buy. For a $40,000 vehicle, your bank may require 20% down, which works out to $8,000 in down payment alone. If you don’t have or don’t wish to put down such a big amount, a lease may prove to be the ideal solution.

How Often Do You Change Your Car

Ask yourself when you plan to get a new car. If you plan to get a new car every few years, leasing will probably be most suitable for you. But if you plan on using your car till the very end, it makes more sense for you to go for auto loans to buy it. Generally speaking, if your intention is to use a car for less than three years, a car lease will prove to be a more practical option than auto loans.

Renting or Owning?

When it comes to lease versus buying with auto loans, it really comes to a choice between ownership and rental. With a lease you are paying for the right to use the car. But with auto loans you can do as you please with the car for it is yours and yours alone. It’s very similar to renting a home. In rented homes you usually do not have the right to paint or carry out renovations to the house and you need to maintain it in a decent condition otherwise you may have to pay money at the time of moving out. But as the owner of a house, you are free to make whatever changes you fancy and it’s also your decision how to maintain it. The same principle applies to car leasing and car purchasing.

Consider the amount of miles you will be driving. Car leases will allow you to drive a given number of miles every year, with the average being about 10,000 to 15,000 miles per year. If you exceed the agreed number, you will be charged for every additional mileage that you use. This charge will need to be paid when the term of your lease ends. In case you plan to drive beyond the extent of mileage allowed by your lease, it would probably be a better option to buy the vehicle with an auto loan.