Auto Loan Math Tips
Read these 8 Auto Loan Math Tips tips to make your life smarter, better, faster and wiser. Each tip is approved by our Editors and created by expert writers so great we call them Gurus. LifeTips is the place to go when you need to know about Auto Loans tips and hundreds of other topics.
Final Payments
When the time comes to pay off your car loan, there is more involved than simply sending off a check and celebrating. Before making your final payment, you need to contact your lender and find out what the exact amount of the final payment will be. The reason you need to do this is because the payment will depend on the day you make it. Interest accrues daily for most car loans, and if you wind up paying the final payment a day or two early it may change the final payment amount. The same principal applies if you trade a car in and the dealership pays off the remaining balance; they will call and find out the final payment instead of simply sending in the amount you tell them you owe. If you do send in too much money for your final payment, the lender should issue you a refund within a reasonable amount of time. You can avoid this situation, however, by making sure you call and find out your payoff balance before sending in the final payment.
Compare Interest Rates
It is not difficult to find out what the average car loan interest rate is. It is a smart idea to research this information prior to shopping for an auto loan because it will give you a good idea of what interest rate you should settle for. For example, you don't want to accept a car loan interest rate of 7 percent simply because your bank offers it to you; if you can find a rate of 6 percent using a different lender, it will save you quite a bit of money in interest charges over the life of the loan.
To find out what the average car loan interest rate is, check with one of the many interest rate tracker websites online. MSN Money has a simple website which features daily national averages for all types of loans, including auto loans. When you view this information, keep in mind that if you have excellent credit you will be able to find a lower than average interest rate, and if you have a blemished credit history then you can expect to receive a higher than average interest rate. Knowing the average car loan interest rate, however, will help you tremendously when you go to finance your next car loan.
Estimate Your Payment
How reliable are online calculators for automobile loans? As long as you know the annual percentage rate (APR) you will have, the exact amount you will be financing on the loan, and how many months the auto loan will be amortized for, then online calculators can be amazingly accurate. The great thing about online calculators is that you are able to see almost exactly what your monthly payment will be based on your loan information
If you only have a vague idea – for example, you aren't quite sure what your exact APR will be – then you can at least get a ballpark figure for what your monthly payment will be. Calculators can be great for getting an idea of what you can realistically afford. If you have your heart set on a particular car, but then run the numbers through an online calculator and find that you will be looking at $800 a month payments, then you may decide to go with a different car entirely. It is better to find this out in the comfort of your home while using an online calculator instead of being informed of this by the lender or car dealer.
Automobile Loan Calculators
An automobile loan calculator is an invaluable tool to use when you are considering a car purchase. By using a loan calculator, you can get a fairly accurate idea of what monthly payment you can expect to pay, based on the amount you will be paying for the car, the number of months in the loan, and the annual percentage rate (APR) of the auto loan.
Using a loan calculator to estimate your payment before applying for the car loan will help immensely, because it will show you if the amount of money you want to borrow is actually within your budget. You may have you heart set on a certain car, but if you input the information into a loan calculator and find that the monthly payment is simply too much, you can find a different car, which is more conducive to your monthly budget. Using an auto loan calculator will enable you to be an informed buyer, and to avoid being surprised by the amount of your monthly payment.
Cost of Ownership Tool
Edmunds.com, an online car buying site, has so many great tools for used and new car shoppers that it's hard to know where to start. There are the usual car finder options (loan calculators, and decision tools that help you decide whether it's more beneficial to take the rebate or the lower financing rate). However, perhaps one of the best tools on the site is the "TCO" tool.
TCO stands for True Cost to Own. You plug in a few simple pieces of data such as make, model, and year, and whammo! You have a concise, easy to read summary of the true cost of ownership for any car you're interested in (including the original purchase price, the cost of financing, maintenance, taxes, fees, and repairs).
*You can also expand the report to view comparisons of how this car stacks up against others in its class.
Car Finance Calculator
If you cannot decide what type of car loan you want to obtain for your next car purchase, check out some of the various car finance calculators which are available online. In addition to the many car finance calculators which estimate a car loan payment based on annual percentage rate (APR), terms, and amount borrowed, there are plenty of other valuable calculators available to help you make a final decision.
There are calculators to assist you in deciding whether you should buy a car or instead lease one. Other calculators help you figure out if you should purchase a new or a used car. There are even calculators online which will take all of your debt into consideration and let you know if you should even be considering buying a car, based on your current financial situation. You can find all these calculators and more on financial websites like BankRate.com. They are free and easy to use, and the information they give you is invaluable.
Auto Financing Calculators
With so many different auto financing calculators available online, it can sometimes be difficult to decide which one to use. An auto financing calculator on a complicated financial Web site will more than likely give the same information as a calculator on a lender's Web site. There are variations on auto loan calculators. Some will automatically input an annual percentage rate (APR) into the calculation, while others allow the user to manually input the APR.
Your best bet is to start with the calculator offered by the lender you plan on using for your auto loan. If you haven't yet decided on a lender, you can use the calculator provided by the bank you currently do business with, or you can head to a financial Web site like BankRate.com and use the loan calculator there. Although auto loan calculators are designed to only give estimates of future car payments, the information they produce is fairly accurate and can be a valuable tool when planning your next auto purchase.
Trade-Ins
If you intend to trade in your current car when you make your next car purchase, you need to do a little research not only on the car you intend on buying, but also on the car you intend on trading in. If you do not owe any money on the car you are trading in, then all you need to do is to conduct a quick search to find out how much your car is worth. This way, you will not accept a trade-in offer from the dealership which is too low for the value of the trade-in.
If you do still owe money on the car, you should do the same search to find out the value of the car, but then you should also call your current auto finance company to find out exactly how much more money you owe on the loan. If the amount you owe is much less than the trade-in value, then there should be no problem with the trade-in. On the other hand, if you owe more money than the car is worth, you will run into the situation of having negative equity on the car.
Although this is not a big issue with dealerships – they simply tack the additional money onto the new loan – you will need to be aware of the additional money needed on your next car loan so you can calculate your future car loan payments. If you have an enormous amount of negative equity versus the trade-in value, you may want to attempt to sell the car yourself instead of trading it in; the trade-in amount is almost nearly never as much as the full resale value.
| Guru Spotlight |
| Lynne Christen |
