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Are you in need of an auto loan? Wondering how to figure out a monthly payment you can afford? If so, a car loan calculator is the tool for you.
All you have to do is enter in a few numbers, click on calculate, and voila – you’ll see a proposed breakdown of payments month-by-month. In doing so, you’ll be able to choose the right auto loan that you can easily afford.
The car loan calculator is just one resource the team at LendingArch offers their lenders. We’re also here to give you tips on how to fit an auto loan into your budget so you can choose the right plan for your needs. LendingArch is here to help you feel empowered about the car buying process.
Why Should You Take Out a Car Loan?
One of the main benefits of taking out an auto loan is to help you offset costs associated with buying a car. Plus, an auto loan can help you secure financing for a more expensive car that you might not normally be able to afford otherwise.
There are many avenues one can take when financing a car. For example, you could purchase a car with cash, lease, use dealer financing, or take out an auto loan through an online lender. Of course, there are pros and cons to any of the above options.
We recommend that you research each option thoroughly to ensure you choose the best option for your financial situation.
Why Should You Use a Car Loan Calculator?
This tool will easily allow you to see all of the costs associated with getting an auto loan. It also helps you find the lowest loan rates and the best plan possible for your financial needs.
Additionally, using a car loan calculator helps you feel empowered to negotiate the right deal when at the car dealership.
How Do You Use a Payment Calculator?
It’s as easy as 1-2-3! Most online car loan calculators will use the factors below in the calculation process:
Car price: This number will be the total price you’ll pay for the car. Make sure to include taxes and other fees that you’ll be required to pay for (unless those fees will be paid for out-of-pocket). According to Bankrate, typically the total car price adds up to about 10 percent more than your estimate so plan accordingly and be generous with this amount. It’s always safer to overestimate than underestimate when budgeting.
Down payment: Determine the amount of money you’ll put down initially towards your new car. This will include both the down payment and any money you’ll receive for the trade-in value of your existing car.
Interest rate: This will be determined either by a rate that you’re pre-qualified for or an estimate of the current interest rates people are receiving on auto loans nationwide.
Term length: The car loan calculator will ask the number of months you plan to pay off the loan in. Usually auto loans have a 36-month term but depending upon your financial state, you could have a longer or shorter term loan.
Once all of the numbers are plugged in, the calculator will automatically calculate the estimated monthly payment.
Additionally, it’s important to make sure that you know you’ll be paying more than just the monthly loan payments.
No matter how big or small your auto loan is, you should pay attention to how much interest you’ll be paying. This can help to inform your decision about the type of car you buy along with other loan factors.
Another tip to remember is that most car loan calculators will have a disclaimer that the calculated loan amount assumes good credit. However, having little to no credit doesn’t automatically mean you cannot secure an auto loan.
The team at LendingArch is here to help. We specialize in matching Canadians to the right lenders for approval. Simply fill out our short online application and you’ll be matched to top lenders.
How Can You Use a Car Loan Calculator To Your Advantage?
First, you can start off by researching different vehicles that you’re looking to purchase. After you’ve narrowed down that list, try using an online car loan calculator with each of the vehicles you’re interested in.
From there, you can compare and contrast the estimated loan amounts and monthly payments. In doing so, you can see which car will fit into your budget, allowing you to make a realistic decision about an auto payment plan.
We also encourage you to enter in different down payments and loan terms to find the best scenario for your budget. Having this estimate in-hand before you go to the dealership will protect you from overpaying.
What Do You Do Now That You’ve Calculated Your Monthly Payment?
Congrats, you’re one step closer to being prepared before you embark on the car buying process. Now that you know what estimated monthly payments you can afford, it’s a great time for you to sit back and reflect on this valuable information before you buy a car.
Remember, your monthly car payment is just one part of car ownership. Make sure to factor gas and repairs into your monthly auto budget.
A tip for you to feel empowered financially is to make sure your total vehicle costs are equal to or less than 20 percent of your monthly take-home pay. This will help make sure that you don’t accumulate debt.
What Does Pre-Approval Mean Exactly?
A pre-approval serves as a “cash-in-hand” offer that you can take into dealerships. Simply put, pre-approval means that you’re ready to buy a car.
It’s important to wait to become pre-approved for a loan until you’re serious about buying a car. Why? The pre-approval application will have an impact on your credit score. While pre-approval won’t guarantee funding, it acts as a good indicator of your ability to get financing.
Pre-approval differs from becoming pre-qualified. If you’re just starting out in the car buying process, there is the option to get pre-qualified. This is a low-risk way to see what your credit score is and what type of loan you could qualify for.
Getting pre-qualified only requires a soft pull of your credit which won’t damage your credit score. However, the rates aren’t guaranteed so your final rate could be higher.
Should You Get Pre-Approved?
Getting pre-approved for an auto loan allows you to set a realistic budget as well as strengthen your negotiation position (both of which will avoid you overpaying). Additionally, pre-approval helps protect you from mark-ups during the car buying process.
Getting financing through the dealership is convenient but that doesn’t mean that they will offer you the best deal. Sometimes dealership financing could mark up your interest rate by 1-2 percent. While 1 percent might seem small, this percent increase could add up to hundreds of dollars over the entire lifetime of the auto loan. Getting pre-approved means that you’ve found the best interest rate you can qualify for.
Additionally, pre-approval can help avoid upsells. Oftentimes in the final stages of negotiation, it might be easy to get sucked into add-ons such as pre-paying for car maintenance or an extended warranty. To avoid this, simply tell the car salesman “I’m pre-approved for this amount, and I’m not going over it”.
How Can You Get Pre-Approved?
There are three ways to get pre-approval: online, over the phone, or in person at your local bank. However you choose to find a lender, we do recommend that you get rates and quotes from at least two or three. That way you can find the best option and quickly apply. We mentioned earlier that the pre-approval process requires a hard pull on your credit, however if multiple lenders request your credit report within a short time span, it will only count as one pull.
5 Tips to Fit an Auto Loan Into Your Budget
Now that you know how to use a car loan calculator and other tools to find the best auto loan payment plan, let’s focus on how to fit that monthly payment into your existing budget.
Tip #1. Create a budget and stick to it
You created your budget to determine what you can afford. Therefore, it’s key to find the best car that fits your needs and lifestyle within that budget. You can always buy or lease your dream car down the road.
Tip #2. Optimal monthly payment plan
The optimal monthly payment plan for an auto loan should look like the following:
Monthly payment is no larger than 15 percent of your gross pay or 20 percent of your take-home pay;
Your down payment is 20 percent of the car purchase price or more (the bigger the down payment, the smaller the monthly payments will be);
The maximum auto loan term should be 48 months (anything longer and you’ll be paying too much interest).
Regardless of how much money you make, following the above formula will help ensure that you’re paying for a car you can actually afford. It will also help you avoid accumulating too much debt.
Tip #3. Cutting down on monthly expenses can help with allocating money to your new auto loan payment
Changing internet/cable packages, using a smaller phone plan, and refinancing existing loans are just a few options you can evaluate to save some extra money each month.
Tip #4: Consider buying a used car
The total car price may be much lower and inevitably more affordable than buying new. Of course, you’ll have to take into consideration the warranty and major repair costs when buying used, but this route might make more financial sense for you.
Tip #5: Avoid common mistakes
Avoid common auto loan oversights such as going with the first lender who offers you a great car loan. It can also be more convenient to go through dealership financing, however, these are two common mistakes that often result in financial situations that aren’t ideal for you.
By using an online car loan calculator along with the above tips, the team at LendingArch is confident that you’ll sign on the dotted line for the best auto loan that will fit your financial needs.
Find Your Auto Loan With LendingArch
Are you ready to get started? Our team of loan specialists is ready to answer all of your questions. With us by your side, you can get the vehicle you want in a short amount of time. Find the auto loan that fits your needs today!