When shopping for a vehicle, it’s critical to understand how auto loan payments are calculated; we offer the auto loan calculator above to help you make informed financial decisions.
*Please note that we do not offer loans. This calculator is for education purposes and to illustrate how loans work.*
When shopping for a vehicle, it’s critical to understand how auto loan payments are calculated; we offer the auto loan calculator above to help you make informed financial decisions. This guide breaks down the car loan payment formula, factors that affect your monthly payment and offers the above tool to help you make a good decision for your next vehicle.
The Auto Loan Calculator Explained
Car loan payments are a function of the amount you borrow, the interest rate and the number of payments you will make. We’ll assume you have determined a budget for your car. If you aren’t sure what you can afford and would like to get in touch with us for a detailed and thorough evaluation of your financial health, please visit our Wealth Management page.
Calculator Key Factors
Working from the top of the auto loan calculator down, there are five factors:
1. Car Price
The total amount you’re borrowing, including:
- Vehicle price
- Taxes and fees
- Extended warranties (these are a profit center for dealers; proceed thoughtfully!)
2. Down Payment Amount
This is the amount of cash you will contribute immediately. This can come in the form of a your existing car (“trade-in”), cash or a combination of the two. Caution putting big money down on a lease.
3. Loan Amount
This is the purchase price (#1) less the down payment (#2). Enter 0 for the value to be calculated automatically.
4. Loan Term
Most auto loans range from 36-72 months. Longer terms mean:
- Lower monthly payments
- More interest paid over time
- A higher risk of owing more than the car is worth
5. Interest Rate
This rate is determined by:
- Your credit score
- Current market rates
- Loan term length
- New vs. used vehicle and manufacturer incentives
- Local credit unions often offer better financing rates than dealerships or large banks
Auto Loan Calculator Outputs
1. Payment Amount
This is the amount you’ll owe the bank each month for the duration of your loan. In most situations, it will not fluctuate, though it could end early if you paid an amount larger than the required payment.
2. Down Payment Percentage
This is the amount of the car you’re paying up front. There’s no right answer in terms of how much you should put down. Every situation is different; however, it’s important to note that a car is expense and not an “investment” in almost all cases.
3. Total Interest
This is the amount of money you’ll have paid to borrow the money to purchase the car.
4. Total Principal and Interest
This is the total amount of money you’ll have paid to buy the car. In a case of a $35,000 car (incl. taxes and fees) with a $5,000 down payment for 5 years at 5.0%, you’ll have paid approximately $4,000 of interest and a total of $34,000.
Tips for Lowering Your Car Loan Payment
- Make sure you can afford the purchase
- Improve your credit score before applying
- Make a larger down payment
- Shop around for better interest rates (check your local credit union)
Understanding how car loan payments are calculated empowers you to negotiate better terms and avoid financial surprises. Before signing any loan agreement, always calculate your monthly payment and ensure it fits comfortably within your budget.
Can we help you with the Auto Loan Calculator?
For more than 47 years, we have collaborated with our clients in their investment decision making process as they pursue their long-term financial goals.
We are committed to keeping your goals, concerns and attitude about investing at the heart of your plan.
If you’re considering an automobile or other large purchase, but want additional guidance and ready to experience our personalized investment approach and exceptional client service, contact Jason R. Clark, CFA at 949.424.1013 or jclark@kovitz.com.