Purchase Price: the advertised purchase price of the automobile, taking into account any discounts or rebates.
Interest Rate: Enter the auto loan interest rate as a percentage. You can use up to two decimal places.
Term (months): Enter the number of months you will be making loan payments, also called the term. A common loan term is 60 months. However, many financial experts recommend a loan term of around 30 months. The longer your loan term, the more interest you'll have to pay.
Down Payment: Enter the down payment as a whole dollar amount. When selling a car, dealers traditionally ask for a down payment. However, "no-money-down" offers are common, too. Include the total dollar amount of the down payment proper plus all fees due at the time you buy the car. This includes any "dealer fees." If you do not have to make a down payment, enter "0."
Trade Allowance: the "trade-in" value you are getting from the dealer. If you aren't trading in a car, set the value to "0."
Sales Tax Rate: Enter the total sales tax as a percentage. Sales tax can add a lot to the cost of buying a car.
Auto Loans Explained
Auto loans are available through the dealer, a bank, credit union or other lender, such as a special loan company. Which is best?
Dealers' financing promotions may make their loans seem best. The promotions include low interest rates, rebates, and delayed payment programs. But beware. Dealers' promotions often have a catch. That "no payments for a year" program may simply jack up the payments for the remaining years of the loan. The low promotional interest rate may forbid any negotiation on price.
Ultimately, it is unlikely that dealers' loans will be the least expensive. This is especially true for used cars, where the manufacturer rarely provides any support. The dealer is usually just a middleman for banks or finance companies. One way or another, you end up paying the dealer's ďfinderís fee" for the loan. Why not go directly to the lender yourself?
As you are looking around for your auto loan, keep in mind that your credit history is going to have an effect. Any lender will pull a credit report or credit score. If your credit is good, you not only will get the loan, but at a lower rate (APR) than if you have bad credit. Again, donít let bad credit discourage you. You probably will find a lender. You will likely have to pay a bit more with less attractive terms. But if you can meet that financial obligation well, you will have a car and be on your way to improving your credit score.
Auto Loans: Other Costs
Note that there are other costs associated with owning a car, in addition to the costs you have to pay simply to buy the car. The calculator does not take these other costs of ownership into account. These other costs of ownership include any excise tax, any parking fees, gas (carefully evaluate gas mileage and the fuel grade required), any maintenance fees (especially for a used car or a new car you keep longer than a few years), and the car's likely resale value. To really save money, make sure you select an automobile that will cost you the least overall in the first place.
Auto Loans: Other Options
Most people take out an auto loan and end up paying much more than the price of the car as a result of the interest. But you may not have to take out an auto loan. Dealers do accept cash, after all. Other options for getting the money to buy a car include saving it up beforehand, or taking out another kind of loan. The most popular alternative loan to auto loans is home equity loans. Home equity loans generally have lower interest rates than auto loans, since the lender has the option of taking your house away if you don't make payments. However, the closing costs can wipe out any savings. You can use the auto loan vs. home equity loan calculator to figure out if you can save more money with a home equity loan.
If you think you may very well only want to keep your new car for a few years, you might want to consider leasing. Use the auto lease vs. buy calculator to see if this option is right for you.