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Car Loan Calculator
Purchasing a car typically means taking out a car loan. Cars are fairly capital intensive, which means that you need lots of money to buy one, although, if you’re in the market for a new vehicle, you already know that. Furthermore, you have probably spent a lot of time researching for car options. You searched for the best dealerships, best prices, best security features, etc., but do you have a good understanding of how a car loan calculator works? What about interest rate button?
Sometimes these terms are hard to grasp because there is too much information to take it. So let us try to start from the beginning. When you are approved for a car loan by a financial institution, be it the one you do banking with or not, you will receive your money in a lump sum. That means that all the cash you borrowed will be handed to you at once. That also means that you will have to pay it back over time, along with the interest generated from taking that loan.
How much you need to borrow, how much time you take to pay it back and your interest rate all affect the size of your monthly payment. And the formula works, for the most part, as follows: the longer the term the lower your monthly payments. If you combine that with a lower interest rate, it sounds like it may be a good deal, but you could be wrong. The terms of the deal might be structured in a way that you will end up paying more. Moreover, the interest rate could be variable or it may be compounded. To know if this, seemly, good deal is a good option for you, you must understand how car loans work, so you can use the calculator to your advantage.
The first you need to know is the loan amount. This one can be significantly less than the value of the car. And this applies for when you are buying a new car or a second-hand car. That is because the size of the loan is determined by factors like if you have a trade-in vehicle and/or if you are making a down payment on your new car.
The second thing you need know is the Annual Percentage Rate (APR). The APR is the effective interest rate you pay on your loan. In other words, how much extra does the loan cost.
The last thing you need to know is the Loan Term. From the 3, this is the easiest one to understand. It is just the amount of time you have to pay back the loan. Normally, when a car loan is given the amount of time the borrower has to pay back range between 36 to 72 months.
You may still be a tad confused about the whole system. The buttons of the calculator, while simple, hide deep and complex relations. Ergo, let us break it down a little bit more, so you can look at the insides of a car loan. Remember, lower payments are usually good, but it could also mean that you are paying more for your car over the lifetime of the loan. The car loan calculator is a guideline. So it is always important to be vigilant and read the fine print. With that said, let us begin.
The amount borrowed
Let us start with how much money you are borrowing. In the United States, the average price of a new car was USD$33,652 as of June 2016, according to the United States government. That is up 2% from June 2015. And Canada is no different. Based on Stats Canada, the number of new cars sold monthly went from 9,513 in March 2016, to 10,573 new cars per month by March 2017. That represents a jump of 11.1%. Prices have also increased in Canada to adjust to this new demand. Thusly, it is no surprise that consumers are increasingly financing their vehicle purchases.
Lowering the amount you borrowed is quite important. However, you do not want to lower it by too much if you are planning to borrow. This may sound crazy, but here is an example of lowering the amount just right. Let us say you are thinking about a $25,000 car loan, which is the amount your car will cost. Luckily, you had $2,000 to spare on your bank account and used it as a down payment. Or maybe you got lucky and you managed to negotiate the price of the car down by $2,000. Your car loan has effectively become $23,000. If you use the car loan calculator you will see that this decrease will save you $44.27 per month. That is, of course, if you have a 3% APR and a 48 months term (or 4-year term).
In the previous example, you had a fairly significant loan, and you managed to lower it by a fair amount. That is a good way to take advantage of the loan. However, let’s say that you managed to do a far better job than expected with the lender. Moreover, you were trading in your old car for the new car, now your loan when from $23,000 to a $5,000. Now you only need a few thousand dollars to buy the car. You check the numbers in the calculator and realize that the payments are barely non-existent. Sounds, like a great deal, right?
The car loan calculator will allow you to see the numbers so you know how much you will pay for your car loan. When using the car loan calculator to know how much to borrow always try to set realistic loan limits, after that our lenders will be in charge of helping you achieve your final goal.
The Interest Rate
Let us talk about the APR or Interest Rate. Auto loans interest rates can change daily and vary widely from institution to institution. For example, consider that same $25,000 auto loan that we used before. Let us put that loan on a 48-months term and see what happens when trying 2 different financial institutions. Financial institution A offers a 3.% APR. Meanwhile, financial institution B offers a 2% APR. This one percent gap will save you $10.98 per month.
Sounds crazy, but that is how big of an impact the interest rate that you get on the loan has on what would be your monthly payment or even the total cost of your loan. Consider this other example on how the numbers change if you had to pay a 6% rate instead of 4% rate for the same car on a 5-year loan.
The monthly payment on a 5-year loan for $30,287 at 6% interest would be $585.53. That means that would pay $3,131.80 in monthly payments. Throw in the 10% down payment, and the car costs $38,497. If stretched to an 8-year term, the monthly payment on that $30,204 loan at 6% interest drops to $398.01 a month. The loan payments would total $38,208.96. Add in the 10% down payment and the car costs $41,574.16.
Sounds crazy, but is true. You might consider playing it safe and get pre-approval from a bank or credit union before shopping for a car. You will use the calculator only to compare prices, but at least the loan will be in your hands. Consumer Advocates and Consumer Watchdog groups say that an auto sales representative will give you either a good price on the car, or a good deal on the financing, but not both. This is why we offer you our services to have a group of expert lenders advise you before you go to any financial institution or car dealership to look for a car. What you can do is use the auto loan calculator to have an idea of how much you will pay and then fill our online application to get in touch with one of our lenders.
The good news is that you can get an idea of how much you will have to pay for your loan if you know your credit score. The better your credit score the lower the interest will be. That is because your credit score signals the financial institutions how trustworthy you at paying back your debts. If you are unsure if your credit loans include simple interest rates or compound interest rates, do not worry. The car loans with Auto Finance Canada are made with simple interest rates. That means that the borrower agrees to pay the money back, plus a flat percentage of the amount borrowed. This is much better than working with compound interest, since the interest earns interest over time making compound APR get expensive really quick.
Lastly, the amount of time you will need to pay back the loan will affect how much you have to pay monthly. A longer loan term implies a lower cost. If you extend a $25,000 loan from 4 years to 5 years, assuming a 3% interest, it will lower your monthly payment by $104.14. But, you will end up paying $391.85 more in interest charges over the life of the loan. Thusly, one of the most important things to understand about how auto loans work is the relationship between the loan term and the interest you pay. A longer loan term can dramatically lower your monthly payment, but it also means you pay more in interest.
Take the same $25,000 car loan at a 3% APR, and this time put it on a 48-month term. Over the 4 years of payments, you’ll pay $1,561 in total interest on the loan. If you extend that same loan to a 60-month term or back to the original 5 years, you will lower your monthly payment by $104. However, you will increase the total interest you will pay from $1,561 to $1,953. And it may sound like this is some sort of crazy voodoo, but you are free to review these numbers our car loan calculator.
A little bit of practice
Now you have an idea of how loans work. You feel confident enough to plug some numbers and see if you get the returns you are expecting. The examples below, show how the real cost of a car is determined by the car loan you choose. In every case, the car, the down payment and the amount to be financed are the same: The price is that average $33,652. The down payment is 10%. The amount financed will be $30,287.
A 4% loan for a 5-year period would cost $557.78 a month. At the end of that time, you would have paid $33,466.80 in monthly payments. Add in the $3,365.20 down payment and the real cost of the car will be $36,832. If you stretched that loan to eight years, the monthly payment would drop to $369.18. At the end of that time, your loan payments would total $35,441.28. Including the $3,365.20 down payment, the real cost of the car rises to $38,806.48. Try it. Use the calculator to toy with the numbers and see how important all the input variables really are.
Bottom line, you must weigh-in all the factors when deciding how. Our auto loan calculator is a great tool to help you out. But you must remember that choosing a vehicle loan is always a trade-off. There isn’t any one-size-fits-all way to determine the best car loan. That’s why you need to apply online at Autofinance.ca and let our lenders help you understand how auto loans work and come up with the right decision for your specific financial situation. If you’re on a tight budget, a lower monthly bill is an attractive option, but it means more monthly payments and a higher real price for the car. If you want to pay the best price for the car and a faster path out of debt, you’ll need to manage a hefty monthly payment.
Some people already have an existing car loan. If you are ready to get started, use our car loan calculator, fill our online application form and you will receive the best option for you.