How To Tabulate Your Monthly Car Loan Costs
When you compare monthly car loan costs, you’ll notice a bit of disparity between the base value of your vehicle and your total regular payments. To be more specific, you’ll find that those monthly payments, added together, work out to be more than the sticker price of the car itself.
Translation: you might need more money than you first expected to get the car you want. But, how much? Exactly how do you work out the amount you’ll be paying so that you can plan accordingly to pay for your new vehicle?
To do this, you’ll need to gain an understanding of what factors influence monthly payments, and a good tool to help you crunch the numbers. Let’s explore.
What’s In A Car Loan?
As we mentioned, it’s more than just the amount of the car, though, this does play a significant role. It has a large effect on the total amount you intend to borrow, and the more expensive the vehicle, the more you’ll be paying from month-to-month.
When you go to purchase a vehicle, there are few ways to knock this price down and make your monthly payments a bit slimmer. If you’re purchasing a new vehicle, for instance, dealers will sometimes offer incentives in the form of discounts that will reduce the purchase price.
They’ll rarely, if ever, offer these for used vehicles, so in some cases, you’ll find that purchasing new is the superior option (particularly for cars that hold their value well). Other times, though, you’ll find the low price of a used vehicle is the better deal. Always be prepared to compare your options.
Another way to reduce the amount of the loan you’ll need to take out is by offering a down payment or having a trade-in when you go to buy your next car.
This money goes towards the purchase price, so it’s always a good idea to have some cash saved up that you can use and to take great care of your current vehicle so you can get the maximum value possible when trading it in.
The next big factor that will influence your car loan payments is interest. The interest rate is the additional money that a lender charges you for borrowing their assets (the car loan, in this case). The lower your interest rate, the less you’ll have to pay every month.
To keep your interest rate low, your best bet is keeping your credit score high. When lenders see you as “low risk,” they are more likely to offer you the best rates (APR) on your loan, sometimes as low as 2-3%, if your credit is very good.
If your credit is less than excellent, you might be looking at higher rates, but even in these cases, it’s still a great idea to explore all of your borrowing options. By comparing the different lenders, you might still be able to find one willing to offer you reasonable interest rates.
Lastly, the term (length of time) of the loan will affect how much you pay from month-to-month. A longer loan term means lowered monthly payments, but you will end up paying a greater total amount overall. A shorter term loan will have the opposite effect.
Remember that you can take out a loan for a longer term to reduce your minimum monthly payments, and pay extra when you can so that you can try to get the loan paid off faster.
There are, of course, a few other factors like taxes, tags, title, etc., that will work their way into the final costs, but these aren’t generally as influential as the three major components that we discussed.
Adding It All Up
You can use a tool called a loan calculator to work out all of your likely costs and arrive at an estimated monthly payment. Use these programs to help find out what you’ll be paying for the vehicle you want, and plan accordingly.
Remember to compare different rates that you’ll get from different lenders and view the payments on different term-lengths, so you’ve got an idea of all your options.
Founder Dinis Guarda
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