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What is an Auto Loan Calculator and Why Everyone Should Use One When Buying a Car

May 22, 2023
Using an auto loan calculator helped this couple make a smart choice for their car purchase.

The purpose of an auto loan calculator is to show potential car buyers how much they can afford to spend on a new or pre-owned vehicle. With this calculator, you can determine the purchase price or your new monthly auto loan payment. Calculations include applicable taxes, interest rate, and the term of the loan (how long you wish to finance for).

Those who put this online resource to work can also adjust the numbers in ways that could mean big savings. If you're considering buying a new or pre-owned vehicle, an auto loan calculator can be a valuable tool.


Auto Loan Calculator Basics

An auto loan calculator helps buyers determine their monthly payment based on the purchase price, down payment, interest rate, and any other expenses associated with buying the car. When using the auto loan calculator, be sure to explore your different options by adjusting the down payment amount, length of loan terms, and interest rate to see alternatives for your new monthly payment.

Using this online resource also shows car buyers the maximum they can afford to pay for a new or pre-owned vehicle ensuring, it fits their budget. By conducting some due diligence with an auto loan calculator, you can gauge how much car you can afford before running the numbers with a loan professional.


How Does an Auto Loan Calculator Work?

Let’s say you want to know the total price (including all applicable taxes) of what you will be paying for a vehicle. Start with a ballpark estimate of $20,000 as the purchase price of a vehicle. Input that figure into the total purchase price tab of the calculator. If you plan to put 10 percent down, type in $2,000 in the down payment tab, leaving $18,000 to be financed with an estimated $100 in taxes and fees. Then select an interest rate that reflects your creditworthiness. If you would like to get a more accurate FICO score, you can request a free copy from the three major credit bureaus — Equifax, Experian, and TransUnion every 12 months, but it's not necessary.

Although rates fluctuate, a credit score of 650 typically garners an interest rate of about 8 percent for a new car. People with FICO scores of 750 may enjoy interest rates of 6 percent or lower. Let’s say someone enters a happy medium of 7 percent and sets the number of payments at 48 months. The monthly installment would be around $433.43.

To lower this payment, estimate the trade-in value of your current vehicle by looking it up in Kelly Blue Book. For the purposes of getting familiar with the auto loan calculator, let’s enter $4,000. You’ll notice the monthly payment dipped to $337.64. That’s a huge saving!

By extending the terms to 60 months, you’d only pay $279.20 each month and that could help with budgeting. It’s also important to note that lengthier loans result in more interest paid overall. If you're looking to save on interest, play around with a larger down payment or shorter terms.

Each time you change the numbers, click on the Report tab to see how much interest you pay over the life of the loan. Strategic use of an auto loan calculator can save you a tremendous amount of money or help you get the vehicle you want to fit into your monthly budget.

Quick Tip!

Often times your credit union will be able to help you find your dream car through a vehicle buying service. At Peach State, we work with Auto Assistance. They can help you every step of the way, from finding a vehicle that suits your needs to negotiating pricing and delivering the vehicle right to your door! They’ll even check the vehicle history report and make sure you get the best deal available!


Benefits of Using an Auto Loan Calculator

An auto loan calculator can help identify ways you can afford to purchase a new or pre-owned vehicle that fits your lifestyle and budget. However, these are other benefits you'll gain by tapping into this user-friendly online resource.

  • Saves Time: The easiest way to determine and adjust monthly installments is by using an auto loan calculator. This process helps buyers search for vehicles in their price range and apply for appropriate car loans.
  • Customization: The ability to change the numbers on the digital tool allows car buyers to choose a loan amount they qualify for and massage the terms to fit into their budget. Inputting options such as repayment terms, down payment amount, and trade-in value delivers a custom calculation.
  • Breaks Down Loan Data: By clicking through to the car loan Report, car buyers can see precisely how much they would pay in interest, as well as the total payback amount over the life of the loan. That’s a rare level of transparency car buyers don’t always experience.

Can You Use an Auto Loan Calculator for Both New and Used Cars?

An auto loan calculator is designed to provide car shoppers with financial insight regardless of make, model, year, or prior ownership. However, interest rates and terms may vary between new and pre-owned car loans, so be sure to factor this in when computing your monthly loan payment.

Are Auto Loan Calculator Results Accurate?

An auto loan calculator provides information based on the information you input. They are considered user-friendly and offer a more comprehensive view than basic numeric calculators. If you make a mistake with a number, it can be corrected easily.

Shopping for a car and a car loan takes time and patience, but the potential savings make that investment worthwhile. Using an auto loan calculator, will provide you with a figure that can help you determine the price you can afford.

For more details on the ways an auto loan calculator can impact your overall car buying journey and more tips to save you time and money, review our "Car Loans 101: Car Buying Made Easy" complete guide!

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