Calculate Your Car Loan Payments Before You Decide on a Car

Tools & CalculatorsIf you're in the market for a new car (or even a used car that you can't afford to buy with cash), you're probably also in the market for a car loan. While car loans are usually much smaller than mortgages and home equity loans, the auto loan payments can still take a decent-sized bite out of your monthly household budget.

You therefore need to do your research in order to find the most affordable car loan with the most desirable payment terms. As part of that research, you'll want to estimate what your monthly payments will be for various loan amounts at different interest rates.

Regardless of where the financing for your automobile purchase ultimately comes from, your credit scores will factor heavily into the interest rate you pay on your car loan. Much like mortgage brokers, car dealers need to ensure that loan applicants are ready, willing, and able to pay off a line of credit, so if you want to get financing through a car dealer, their loan department is going to run a credit check on you. That means checking out your credit reports and scores from at least one of the three major credit bureaus.

Car dealers find themselves in an interesting spot these days. They need to sell cars to stay in business, but their customers typically require loans to afford car purchases, and the consumer credit industry is still much tighter than it was before the Great Recession occurred.

Because of this dynamic, car dealers may be more willing to provide financing to consumers with poor credit scores than banks might be, but the basic lenders' rule-of-thumb still applies: The lower your credit score is, the higher your interest rate will be — and the bigger your monthly auto loan payments will be.

(Keep in mind that there's another dynamic at play when you take out a loan of any kind. Your record of making, missing, or remitting late payments on that loan will appear on your credit report and factor into your credit score. Missed or delinquent auto loan payments can quickly drag down your credit score, which can affect your ability to renegotiate your car loan or acquire another line of credit.)

There are, of course, factors beyond your credit scores that help determine the ultimate amount of your monthly auto loan payments, including:

  • Dealer or manufacturer rebates. Rebates are usually offered at the end of a model year, when car dealers and carmakers try to reduce their inventory of unsold cars.

  • Trade-in allowances. Car dealers generally put a cap on how much they're willing to reduce the selling price of a car when you trade in your current vehicle.

  • Your outstanding trade-in balance. If you're trading in a car to the dealership where you originally bought it, and you still owe money on that car, the dealer will factor that amount into your loan application.

  • The size of your down payment. Obviously, the more money you put down upfront, the less you'll need to borrow. Smaller car loans often mean better loan terms, because the lender's risk is reduced.

  • Gap insurance. Gap insurance is typically required when a buyer offers little or nothing in the way of a down payment, especially if the buyer has poor credit. This insurance also protects the buyer, though; if your newly-bought car is totaled due to an accident, flood, or other calamity, you won't be on the hook for the outstanding auto loan payments. If you finance through a dealership, any required gap insurance premiums are typically included in your monthly payments.

  • The loan term. Auto loans typically require full repayment within three to five years.

  • Your interest rate. As noted earlier, your credit scores will be used to determine the general range of your interest rate, but the factors listed above will also play a role.

Regardless of where you finance your car purchase, negotiating a car loan and determining your auto loan payments can be a complicated undertaking. Before you choose your next car, much less apply for a car loan, you should make every effort to estimate your auto payments as accurately as possible to help you determine how much you can afford to spend on your car purchase.

FreeScore's Auto Loan Calculator below can help you estimate your monthly auto loan payments. Through the calculator, you can enter any and all of the applicable information listed above to figure out how much you'll end up paying for a car loan, including the total amount of interest you'll pay over the life of the loan.


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