Auto Loan Calculator

Most people who use the Auto Loan Calculator are looking to finance a car purchase within the United States. If you’re not in the U.S., you may still use the calculator, but you’ll need to make the adjustments. You can calculate the actual car purchase price and other loan details using the Monthly Payments tab for the reverse auto loan.

Automobile Loans

Buying a car often causes taking out a loan of some sort. Borrowers must pay back the principal and interest they owe to the lenders each month. As with any other standard secured loan from a bank in the United States, the repayment period is typically 36, 60, 72, or 84 months. When a borrower cannot pay back money borrowed from a lender, the automobile might be taken from them lawfully.

Direct Lending vs. Dealership Financing

Direct lending and dealership finance are the two most common methods of financing automobiles. The first option is a standard bank, credit union, or financial institution loan. Once an agreement has been reached with a car dealer, a car loan from a direct lender is used to cover the cost of a new vehicle.

Dealership financing is identical to traditional finance, except the dealership handles the loan application and documentation. Captive lenders, frequently connected with a particular automobile brand, typically operate auto loans obtained through dealerships. Often, the contract is sold to a bank or other financial entity called an assignee, which is ultimately responsible for servicing the debt.

When consumers enter a vehicle dealership with most of the financing on their terms, they have even more leverage to get a better bargain. Getting pre-approved doesn’t tie car buyers to one dealership, and the likelihood they’ll walk away is much higher.

Regarding interest rate shopping, prospective vehicle buyers have fewer options with dealer financing. Still, it is available for those who don’t want to take the time to shop around or who cannot secure an auto loan through direct lending.

Consumers looking to buy new cars should look for financing options from auto manufacturers. Manufacturers often offer suitable financing arrangements to boost sales through dealerships. There are a lot of cheap interest rates available from automobile manufacturers, including 0%, 0.9, 1.9, and 2.9 percent.

Rebates on Vehicles

To entice purchasers, car manufacturers may give discounts on purchasing a new vehicle. The rebate may be taxed or not, depending on the state. On a $30,000 automobile, for example, with a $2,000 rebate, sales tax will be assessed at $30,000, not $28,000. Fortunately, this is not the case in most jurisdictions, which means cash rebates are not taxed. These states include Alaska, Arizona, Delaware, Iowa, Kansas, Kentucky, Louisiana, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas, Utah, Vermont, and Wyoming.

Mostly, incentives are only available on new vehicles. Certain used-car sellers offer cash rebates, which is unusual because of the difficulties in estimating the vehicle’s actual value.

Fees

It’s not only the purchase price that comes with a car purchase. Buyers with poor credit scores may be required to pay fees upfront. Additional expenditures may be wrapped into financing an auto loan or paid in full up-front. A list of the most common expenses associated with buying a car in the U.S. includes the following items:

• Auto purchases are subject to the payment of sales tax in the vast majority of states in the United States. According to the state where you acquired the vehicle, you might pay the car’s purchase price sales tax. States that don’t levy sales tax include Alaska, Delaware, Montana, New Hampshire, and Oregon.
• The dealer collects a document fee for processing paperwork, such as the title and registration of the vehicle.
• State-collected automobile titling and registration fees are known as “title and registration fees.”
• The regional dealer pays a cost to promote the manufacturer’s vehicle in the dealer’s area as an advertising fee. Advertising costs take up a portion of the purchase price of a car. A couple of hundred USD is usually the going rate for this service.
• The destination fee covers shipping the vehicle from the factory to the dealership. Between $900 to $1,500 is typical for this cost.
• A valid driver’s license and vehicle insurance are necessary for the United States to be considered a lawful driver on public highways.

Full coverage insurance is frequently required when purchasing a car with a loan rather than cash. Comprehensive car insurance may cost more than $1,000 per year. Most automobile dealerships may give new car owners a short-term (1 or 2 months) insurance policy to expedite the paperwork procedure.

Ensure you select the box for ‘Include All Fees in Loan’ if fees are included in the vehicle loan. If they are paid in advance, leave this field blank. When purchasing a car from a dealership, it’s good to demand an explanation and reason for any “strange” additional fees.

Strategies for obtaining a car loan

Preparation

The best way to secure a good vehicle loan is to plan. Determine what you can afford before visiting a dealership. Researching and finding the most excellent offers is easier if you know what sort of vehicle you want. When deciding on a specific model, understanding the regular market price is helpful so you can haggle more effectively with a vehicle dealer.

After choosing a particular model, having a few typical bids in mind to effectively negotiate with a car seller is usually helpful. This includes talking to several lenders and getting quotes in different places.

Like many other entrepreneurs, auto dealers want to make as much money as possible on the sale. Still, with enough negotiation, they are often willing to sell the car for much less than the price they initially offered. Getting pre-approved for a car loan through direct lending can help with negotiations.

Credit

Automobile loan approvals are typically based on credit, and to a lesser extent, on income, whether through dealership finance or direct lending. Borrowers with good credit should expect cheaper interest rates, resulting in a reduced overall cost of a car. Before taking out a loan to buy a car, people may enhance their chances of negotiating the best prices by working to improve their credit ratings.

Low-Interest Rate vs. Cash Back

There is no one-size-fits-all answer to this question. Suppose you're in the market for a car. In that case, you may be eligible for a cash rebate from the manufacturer or a cheaper interest rate. Cash Back rebates cut the purchase price of a vehicle immediately. Still, reduced interest rates might save your money in the long run.

Pay it off on time

You should examine a vehicle loan deal thoroughly before signing. Shortening the term of a car loan by paying it off early might save you money on interest. Some lenders impose penalties or restrictions on early repayment.

Be open to other possibilities

Even if it is only a few years old, buying a pre-owned car can save you much money over purchasing a new one. New cars depreciate immediately after being driven off the lot, more often than not by over 10% of their worth. This is known as off-the-lot devaluation and is a choice for potential purchasers to consider.

Leasing is essentially a long-term rental. But it usually costs less than a complete purchase and is a good option for people who want to drive a new car. Visit the Auto Lease Calculator for additional details or to do calculations with auto leasing.

As an Alternative, Consider Paying Cash for Your Next Vehicle Purchase

While most car purchases in the U.S. are made with auto loans, there are advantages to paying for a car entirely in cash.

Avoid Making Monthly Payments

Paying in cash relieves you of the burden of making regular payments on your debt. Emotional benefits might be substantial for those who don’t want to be burdened by a hefty loan for the next several years.

Flexibility

After paying in full, you own the vehicle outright. Nothing prevents you from selling the automobile after a few months, switching to a less expensive insurance policy, or changing the car as you see fit.

Avoid Interest

Avoiding interest in purchasing an automobile implies that no interest will be paid. It results in cheaper ownership costs. If you borrow $32,000 for five years at 6% interest, it will cause a monthly payment of $618.65 and an overall interest payment of $5,118.98. Paying with cash saves $5,118.98.

Discounts

Auto discounts might include cash back or low-interest financing, depending on the terms of the deal. Some rebates are only available to customers who pay with cash.

Avoid Overbuying

Financing is less specific and can lead buyers to purchase more than they can afford in the long run. Paying in full with one amount limits car buyers to what is within their immediate, calculated budget. It’s easy to be persuaded to increase the monthly payment by a few dollars to extend the loan duration for a more expensive vehicle.

Car sellers use commissions and complicated financing to get the buyer to make an out-of-pocket purchase. You can avoid this by paying cash.

Avoid Underwater Loan

When financing a depreciating asset, beware of loans that go “underwater,” meaning that you owe more on your loan than your purchase is now worth. Paying off a car loan in full keeps you out of this situation entirely.

There are various benefits to purchasing a car with cash. But this does not mean that everyone should do that. Even if a buyer has enough money to pay for a car in full, sometimes taking out a loan makes more sense.

If other investment alternatives offer higher returns, investing the money may be more profitable than taking out a low-interest loan for a new car. As an added benefit, car buyers who want to raise their credit score can benefit from the financing option.

Trade-in Value

A trade-in is selling your car to the dealership in return for credit for purchasing another vehicle. Don’t expect to get much money for your old automobile when you trade it in at the dealership. You may achieve a better financial outcome by selling old cars privately and using the money toward purchasing a new vehicle.

The basis for the sales tax in most states is the difference between the purchase price of a new car and the car's trade-in value. However, this is not the case in all states. The tax paid on a $30,000 new automobile purchase with a $10,000 trade-in value at an 8 percent tax rate is:

($30,000 - $10,000) × 8% = $1,600

Some states, including California, the District of Columbia, Hawaii, Kentucky, Maryland, Michigan, Montana, and Virginia, do not give any sales tax discount on trade-ins. This Auto Loan Calculator uses the state's Trade-in Value to compute sales tax on Trade-in Value.

If you acquired the new automobile in a state where trade-ins are not eligible for a sales tax discount, the sales tax would be:

$30,000 × 8% = $2,400

The $800 differential might be enough to persuade consumers in these states selling a car to consider a private transaction.