If you’re toying with the idea of buying a car, choosing a car with an affordable monthly payment is likely a priority. Spending more than you can afford can have a significant impact on your personal finances. It might become difficult to make your monthly payment each month, and if you fall behind on your payments, there’s the risk of repossession and a damaged credit score.
There are, however, ways to avoid this scenario. Many people have had success estimating their car loan payment using a calculator. These calculators are user-friendly, and it’s simply a matter of entering information. This can give you an idea of monthly payment amounts based on a particular price and term. But to keep your estimate within an accurate range, there are several factors to take into consideration.
Here are four tips for estimating your car loan payment using a calculator.
1. Deduct your trade-in value from the price of the car
When using a calculator, you will need to know the sale price of the vehicle. But if you plan on trading in an existing car, you will also need to calculate the trade-in value of this car. There are multiple ways to obtain your trade-in value. You can visit a dealership and have your car appraised, at which time the dealer will calculate the value of your trade-in. Or you can go to websites like Edmunds.com and estimate your own trade-in value. Based on the make, model, year and condition of your vehicle, these websites can provide a fairly accurate figure. Whatever the trade-in value of your car, subtract this figure from your vehicle sale price when calculating your car loan payment.
2. Know your credit score
For a close estimate, you will need interest rate information. This is tricky, as rates can fluctuate among banks. However, you might be able to guess your interest rate range based on your credit score. You can call the credit department of any bank or credit union and request rate information based on credit score. Once you have this information, order your own credit score from Myfico.com, and then determine your potential auto loan rate based on your personal score. For example, if you have a 760 credit score, you may qualify for a interest rate around 4%.
3. Don’t forget to include sales tax and registration fees
If only car payments were based on sale prices and interest rates. Unfortunately, car dealerships charge sales tax, plus there are title and registration fees. You can pay these charges out-of-pocket, or wrap these costs into your sale price. When using a calculator, if sales tax in your state is 7%, you will need to add this percentage to the sale price of your car. Contact a dealership or the DMV for information on title and registration fees.
4. Include your down payment
You can purchase a car without a down payment. But if you decide to make a down payment, don’t forget to deduct this amount from the sale price of the car. It doesn’t matter if you’re only putting down $1,000 or $2,000, factoring in your down payment contributes to accuracy when estimating your car loan payment.