You need to calculate your car loan to make sure it fits into your budget. Low rates mean nothing if the loan term is very long. If you calculate a car loan before you accept it, you'll have a better understanding of your obligation and hopefully less chance of defaulting on it.
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Difficulty:
Moderately Easy
Instructions
1
Subtract your expected down payment and vehicle trade in value from the total price of the car. The resulting amount is roughly what you should expect to need for your car loan.
2
Overestimate the amount of money you'll need to finance your new car purchase. Assume you'll need more money than the sticker price of the car because there are dealer fees and other small extras that can really increase the total price of the car. Sales tax is one of the larger contributors to the increased price.
3
Research the various options available with different loan terms. A shorter term will have you paying larger monthly payments, but you'll pay less interest overall.
4
Calculate your car loan payments by using a financial calculator. There are many online sites that let you calculate a car loan for free, like Cars.com (see Resources below).
5
Call your insurance company for an estimate on how much your new car will cost to cover. Some car safety extras, like side air bags, may increase the sticker price of your car but help you save on monthly insurance payments.
6
Add the monthly payment of your loan and your insurance to your average monthly budget. This final calculation will show you how much money you'll expect to spend on bills each month. If this value is more than you make, look for a better loan or buy a cheaper vehicle.
Tips & Warnings
Use several online car loan calculators to be sure that you're getting an accurate monthly payment.
Recalculate your payments before you accept an offer to refinance your car loan.
If your calculations show that your car payments will use up most of your income each month, wait a year to buy a new vehicle. Stay on top of your credit obligations during the year and you might get a better loan.
Never commit to a car loan before determining how it will affect your total budget.
