Are you looking to buy your first car?
With car prices rising due to the pandemic, applying for a car loan is the most sensible move. It applies even when you plan to replace your old vehicle.
A car loan makes payments easier on your budget. It also gives you term options matching your current financial standing. However, a car loan has an interest rate, making the price tricky to compute.
You can get a better estimate of your monthly payments with a car loan interest rate calculator. Read on to learn how to calculate with this tool.
Start With the Car Price
Place the estimated price of the vehicle in the car price field. A basis for a price estimate is the manufacturer’s suggested retail price (MSRP). You can check the MSRP online or visit a trusted car dealership.
Subtract the rebates or discounts whenever applicable. If you’re buying a new car, add the destination fee and cost of options.
For pre-owned vehicles, visit reputable online pricing guides and classified ads. Compare seller prices and negotiate for a lower price tag.
Determine the Interest Rate
Find the credit score drop-down menu and select your current credit score. You may also visit websites of online lenders to check the average car loan interest rate. It allows you to have a more accurate car loan interest rate.
Some lenders offer competitive interest rates. Companies like Plenti Car Loan offer interest rates below the national average. If you secure a pre-approval, enter the rate your lender provided.
Look for a car loan interest rate calculator with an amortization schedule. It will give you an idea of how much your monthly payments cost, including the interest.
The primary basis of the interest is the loan’s then-current balance. During the early part of the loan, the interest rate is high because of the balance, but as you send in your monthly payments, your balance decreases alongside the interest.
Different factors affect car loan rates but pay more attention to credit score. Around 53% of Americans encounter rejections in their loan applications due to poor credit scores.
If your credit score is between 781 and 850, the average interest rate is 2.34%. The total interest for $30,000 loan cost over five years is $3,510. The lower your credit score, the higher the interest rates become.
Other factors affecting interest rates include your debt-to-income ratio and the Federal Reserve interest rates. Lower Fed rates mean paying less to borrow from the lender.
Input Your Down Payment
If you’re making a down payment, deduct the amount from the loan. In the down payment field, enter the amount you can deposit. You may also enter the trade-in value of your existing vehicle and deduct it from the loan.
The usual amount for a down payment is 10% of the vehicle’s MSRP. Try to bump it up to 20% to get better rates.
Whether you’re giving a down payment or trading in your car, a higher amount will lower the interest rate. On average, every $1,000 worth of down payment reduces your monthly payments by $18.
Enter the Loan Term
Enter the loan term or your preferred number of monthly car payments. Choosing a longer loan term means lower monthly payments. A longer loan term is perfect when you have a tight cash flow.
The downside to a longer loan term is the higher interest rate. Meanwhile, a shorter loan term means higher monthly payments with lower interest.
Generally, car loans come in 12-month increments. Input different loan terms to see the number of monthly payments suited for your budget.
Once you fill all the fields, the interest rate calculator should give you a breakdown of the results. Review the total monthly payment, principal paid, and interest paid. Adding the last two will yield the overall cost of the vehicle.
Tips for Securing a Car Loan Approval
Having an idea of your monthly car payments does not guarantee loan approval. Before applying for a car loan, evaluate your current financial status. Revisit your income and credit history.
If you have outstanding debts, settle them before applying for a car loan. Check your debt-to-service ratio. It is the percentage of your income that will eventually go toward the car loan.
Can your family live comfortably even with your monthly payments? Avoid incurring new debt while paying off your current ones. Talk to a trusted financial advisor to help you decide whether you are ready to apply for a loan.
If you are searching for a car to buy, focus on saving money for a down payment. Giving a down payment also increases the odds of securing a loan. Lenders view this gesture as your commitment toward the sale.
While saving for a down payment, stick to your current job for at least two years. It will show the lenders your employment stability. Otherwise, expect them to reject your loan application.
Work on getting pre-approved for the loan. It gives you a better perspective of how much you can afford. Pre-approval can guide you toward the necessary amount to save and keep you from buying a car beyond your financial capabilities.
Talk to different lenders and secure a pre-approval from each establishment. This strategy lets you discover the lender with the most desirable rates. You can also use the information as leverage when talking to car dealers.
Use a Car Loan Interest Rate Calculator Now
A car loan interest rate calculator helps you prepare for a new vehicle. It keeps you from entering a loan likely to hurt you in the long run. Aside from this, it also determines whether your finances are ready.
However, getting a car loan estimate is only the beginning. Study ways on how to get the most reputable car dealer in your area. Otherwise, you will waste a lot of money on shady deals.
Did you find this guide helpful? If so, consider reading our other posts for more.