Trying to figure out how much car you can afford? We're here to help. Find out how an auto loan calculator works and maybe do the math yourself. Here are some basic steps you can take to determine just how much you'll be paying for that new-to-you used car.
First you need to get the price of the car you are going to buy. Negotiate with the seller to find an agreeable price. Take that number and subtract any money you plan on putting down on the car. Say you plan to pay $20,000 for a used car and you have $5,000 you want to put down. You will need to plan to finance at least the remaining $15,000 with a loan.
Don't forget to add state sales tax, titles and fees to your purchase price. All of these things are going to have to come out of your pocket so it's best to get all of those numbers out in the open before you start looking for a loan. Each state has different tax rules so depending on where you are buying the car (where you will register it) you'll need to research the tax rate in your state. The DMV has a great site that makes it simple to search for tax rates in your location. You'll only need to pay tax in the state that you will be registering the car in--not in the state you buy it in. Car Max also offers a free calculator for some states (that offer the feature) tax and title fees. Check it out here.
So, to use our previous example, if you were purchasing a $20,000 car in a state with 7% sales tax and an additional $200 for tags and title, your total cost for the car would be:
If you put down $5,000 on the car you would need to take a loan of $16,600 out.
Auto loans are amortizing loans. Essentially this means that you will take out the total loan and pay back the lender with interest. That interest is amortized out over the life of the loan. You can figure out what your monthly payment will be with some simple math—OR—you can use an online auto loan calculator.
These calculators use a simple formula to determine your loan payments. We like the one over at Bankrate (http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx) or the one at Allstate (https://www.allstate.com/tools-and-resources/car-insurance/compare-auto-loans-calculator.aspx) which gives you the option to compare two loans.
The big factor that determines what your loan will cost is your interest rate. Interest rates are based on a few things that both fall inside of your control and outside of it. First they are based on the current rate that the banks can borrow money from the Central Bank. This rate is influenced by the things that are going on in the economy and generally completely out of your control.
Under your control are things like your credit score and your debt-to-income ratio. Be sure to get a credit report to know where you fall. The higher the score the easier it is for you to borrow and the better interest rate you'll get.
Additionally, your rate will be based on the total amount you will need to borrow and how much you can put down on the total cost of the car. Lenders also will factor in the age of the car and the length of the term of your loan to determine what your rate will be.
To get an idea of what your rate might be, it's best to head to a few banks and see what kinds of deals they may be offering. Remember, a low advertised rate doesn't mean that that's the rate you'll qualify for. You'll need to have the bank run your credit to determine exactly what the cost of your loan will be.
Before you head off to the bank though, it's best to check out the auto loan calculators. They offer the option to put in your own loan rate so you can get a better idea of what your payment will actually be without running your credit every time. Once you have a better idea of your monthly cost for a new-to-you car, you can make a more sound financial decision when it comes time to purchase.
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Digital media content producer/consultant & former CNN senior producer, now running CN'TRL : Cars, Tech, Real Estate & Luxury.