How to Calculate Finance Charges on a New Car Loan

It's important to calculate finance charges on a new car loan to know if you will be able to afford the car. The interest rate can make or break your car purchase. Here's how to calculate finance charges on a new car loan.

Difficulty: Moderate

Instructions

1. Decide how much of a down payment you can afford. Finance charges and interest rates are a function of the lender's risk. A lending institution has a lot less at risk if you put down 50 percent of the car's value. As a result, your interest rate and finance charges will be lower. However, if you buy a car with no money down, the lending institution has a lot more at stake and will charge you accordingly.

2. Calculate the actual amount borrowed.

3. Determine the length of a loan. It goes without saying that the shorter the loan, the less you will pay in finance charges. The shorter loan, however, will have a higher monthly payment requirement. If you cannot afford to pay off an auto loan in 2 years, then it's best to go with the longer repayment term.

4. Find a user-friendly online loan calculator to calculate your finance charge.

5. Plug in your numbers. Now that you know how much you borrowed, what your interest rate is and the term of your loan, all you have to do is plug your car loan numbers into the online calculators to calculate your finance charges.

Tips & Warnings

• If you take a longer loan term, you can always double up on payments as your financial situation changes. If your credit score improves, you can even refinance your loan at a lower interest rate.
• Cars.com and Bankrate.com are websites that have simple, easy to use auto loan calculators.