How to Calculate a Car Loan
Shopping for a new car? Here are four things you should know to get the car loan you need.
What to know to get the loan you need
If you’re in the market for a new car, it’s likely the vehicle will come with a loan attached. Chances are you don’t want to pay too much for that loan either, so it’s important to plan ahead. Here are four key things you need to know to accurately calculate a car loan and make sure the vehicle you want fits into your budget.
1. Know Your Credit History
The amount you pay for a new car in the long run will depend on a number of factors – the sticker price of the vehicle, the length of the loan term and the interest rate you get. The interest rate will in turn be influenced by your past credit history.
Before you set foot on the lot and take a test drive, look at your credit profile and see where you stand. If there are errors in your file, have them corrected immediately and potentially save a ton of money in the long run. At the very least, knowing you have a clean credit history will help you estimate your future car payments.
2. Find an Affordable Vehicle
While the thought of a brand new luxury SUV or bright red sports car is wildly tempting, remember to find a vehicle you can actually afford. Stretching too much to buy a car could leave you short on funds for other essentials, so spend within your means.
There are plenty of ways to get a feel for car prices in your area, such as online price guides and local newspaper ads. To give you a better picture of how much you can afford, focus on the sticker price of the vehicle. The car payment calculations can wait until later.
3. Research Current Interest Rates
Before you go shopping, get a handle on current interest rates. In order to accurately estimate your car loan, you’ll need three key pieces of information:
1. The purchase price of the vehicle
2. The length of the loan
3. The interest rate
You can estimate the car’s price using invoice information and online price guides, and the length of the loan is based on your own preferences. Finding out about interest rates isn’t much trickier either – just go to your bank and ask the loan officer about rates to get an idea of what to expect based on your credit history.
4. Calculate Your Car Loan Payments
Once you have the expected purchase price of the vehicle, the length of the loan and the anticipated interest rate, you can simply plug those numbers into a loan calculator and see your monthly payment.
The information you have can help ensure you can afford the car you’re looking at. If you can’t, you may need to shop for a less costly new car or head to the used car lot instead.
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