The Auto Loan Calculator is mainly intended for car purchases
within the U.S. People outside the U.S. may still use the
calculator, but please adjust accordingly. If only the monthly
payment for any auto loan is given, use the Monthly Payments tab
(reverse auto loan) to calculate the actual vehicle purchase price
and other auto loan information.
Most people turn to auto loans during a vehicle purchase. They
work as any generic, secured loan from a financial institution does
with a typical term of 36, 60, 72, or 84 months in the U.S. Each
month, repayment of principal and interest must be made from
borrowers to auto loan lenders. Money borrowed from a lender that
isn't paid back can result in the car being legally
repossessed.
Generally, there are two main financing options available when
it comes to auto loans: direct lending or dealership financing. The
former comes in the form of a typical loan originating from a bank,
credit union, or financial institution. Once a contract has been
entered with a car dealer to buy a vehicle, the loan is used from
the direct lender to pay for the new car. Dealership financing is
somewhat similar except that the auto loan, and thus paperwork, is
initiated and completed through the dealership instead. Auto loans
via dealers are usually serviced by captive lenders that are often
associated with each car make. The contract is retained by the
dealer but is often sold to a bank, or other financial institution
called an assignee that ultimately services the loan.
Direct lending provides more leverage for buyers to walk into a
car dealer with most of the financing done on their terms, as it
places further stress on the car dealer to compete with a better
rate. Getting pre-approved doesn't tie car buyers down to any one
dealership, and their propensity to simply walk away is much
higher. With dealer financing, the potential car buyer has fewer
choices when it comes to interest rate shopping, though it's there
for convenience for anyone who doesn't want to spend time shopping
or cannot get an auto loan through direct lending.
Often, to promote auto sales, car manufacturers offer good
financing deals via dealers. Consumers in the market for a new car
should start their search for financing with car manufacturers. It
is not rare to get low interest rates like 0%, 0.9%, 1.9%, or 2.9%
from car manufacturers.
Car manufacturers may offer vehicle rebates to further
incentivize buyers. Depending on the state, the rebate may or may
not be taxed accordingly. For example, purchasing a vehicle at
$30,000 with a cash rebate of $2,000 will have sales tax calculated
based on the original price of $30,000, not $28,000. Luckily, a
good portion of states do not do this and don't tax cash rebates.
They are Alaska, Arizona, Delaware, Iowa, Kansas, Kentucky,
Louisiana, Massachusetts, Minnesota, Missouri, Montana, Nebraska,
New Hampshire, Oklahoma, Oregon, Pennsylvania, Rhode Island, Texas,
Utah, Vermont, and Wyoming.
Generally, rebates are only offered for new cars. While some
used car dealers do offer cash rebates, this is rare due to the
difficulty involved in determining the true value of the
vehicle.
A car purchase comes with costs other than the purchase price,
the majority of which are fees that can normally be rolled into the
financing of the auto loan or paid upfront. However, car buyers
with low credit scores might be forced into paying fees upfront.
The following is a list of common fees associated with car
purchases in the U.S.
Sales Tax—Most states in the U.S. collect sales tax for
auto purchases. It is possible to finance the cost of sales tax
with the price of the car, depending on the state the car was
purchased in. Alaska, Delaware, Montana, New Hampshire, and Oregon
are the five states that don't charge sales tax.
Document Fees—This is a fee collected by the dealer for
processing documents like title and registration.
Title and Registration Fees—This is the fee collected by
states for vehicle title and registration.
Advertising Fees—This is a fee that the regional dealer
pays for promoting the manufacturer's automobile in the dealer's
area. If not charged separately, advertising fees are included in
the auto price. A typical price tag for this fee is a few hundred
dollars.
Destination Fee—This is a fee that covers the shipment
of the vehicle from the plant to the dealer's office. This fee is
usually between $900 and $1,500.
Insurance—In the U.S., auto insurance is strictly
mandatory to be regarded as a legal driver on public roads and is
usually required before dealers can process paperwork. When a car
is purchased via loan and not cash, full coverage insurance is
often mandatory. Auto insurance can possibly run more than $1,000 a
year for full coverage. Most auto dealers can provide short-term (1
or 2 months) insurance for paperwork processing so new car owners
can deal with proper insurance later.
If the fees are bundled into the auto loan, remember to check
the box 'Include All Fees in Loan' in the calculator. If they are
paid upfront instead, leave it unchecked. Should an auto dealer
package any mysterious special charges into a car purchase, it
would be wise to demand justification and thorough explanations for
their inclusion.
Preparation
Probably the most important strategy to get a great auto loan is
to be well-prepared. This means determining what is affordable
before heading to a dealership first. Knowing what kind of vehicle
is desired will make it easier to research and find the best deals
to suit your individual needs. Once a particular make and model is
chosen, it is generally useful to have some typical going rates in
mind to enable effective negotiations with a car salesman. This
includes talking to more than one lender and getting quotes from
several different places. Car dealers, like many businesses, want
to make as much money as possible from a sale, but often, given
enough negotiation, are willing to sell a car for significantly
less than the price they initially offer. Getting a preapproval for
an auto loan through direct lending can aid negotiations.
Credit
Credit, and to a lesser extent, income, generally determines
approval for auto loans, whether through dealership financing or
direct lending. In addition, borrowers with excellent credit will
most likely receive lower interest rates, which will result in
paying less for a car overall. Borrowers can improve their chances
to negotiate the best deals by taking steps towards achieving
better credit scores before taking out a loan to purchase a
car.
Cash Back vs. Low Interest
When purchasing a vehicle, many times, auto manufacturers may
offer either a cash vehicle rebate or a lower interest rate. A cash
rebate instantly reduces the purchasing price of the car, but a
lower rate can potentially result in savings in interest payments.
The choice between the two will be different for everyone. For more
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Early Payoff
Paying off an auto loan earlier than usual not only shortens the
length of the loan but can also result in interest savings.
However, some lenders have an early payoff penalty or terms
restricting early payoff. It is important to examine the details
carefully before signing an auto loan contract.
Consider Other Options
Although the allure of a new car can be strong, buying a
pre-owned car even if only a few years removed from new can usually
result in significant savings; new cars depreciate as soon as they
are driven off the lot, sometimes by more than 10% of their values;
this is called off-the-lot depreciation, and is an alternative
option for prospective car buyers to consider.
People who just want a new car for the enjoyment of driving a
new car may also consider a lease, which is, in essence, a
long-term rental that normally costs less upfront than a full
purchase. For more information about or to do calculations
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In some cases, a car might not even be needed! If possible,
consider public transportation, carpool with other people, bike, or
walk instead.
Although most car purchases are made with auto loans in the
U.S., there are benefits to buying a car outright with cash.
Avoid Monthly Payments—Paying with cash relinquishes a
person of the responsibility of making monthly payments. This can
be a huge emotional benefit for anyone who would prefer not to have
a large loan looming over their head for the next few years. In
addition, the possibility of late fees for late monthly payments no
longer exists.
Avoid Interest—No financing involved in the purchase of
a car means there will be no interest charged, which will result in
a lower overall cost to own the car. As a very simple example,
borrowing $32,000 for five years at 6% will require a payment of
$618.65 per month, with a total interest payment of $5,118.98 over
the life of the loan. In this scenario, paying in cash will save
$5,118.98.
Future Flexibility—Because ownership of a car is 100%
after paying in full. There aren't any restrictions on the car,
such as the right to sell it after several months, use less
expensive insurance coverage, and make certain modifications to the
car.
Avoid Overbuying—Paying in full with a single amount
will limit car buyers to what is within their immediate, calculated
budget. On the other hand, financed purchases are less concrete and
have the potential to result in car buyers buying more than what
they can afford long term; it's easy to be tempted to add a few
extra dollars to a monthly payment to stretch the loan length out
for a more expensive car. To complicate matters, car salesmen tend
to use tactics such as fees and intricate financing in order to get
buyers to buy out of their realm. All of this can be avoided by
paying in cash.
Discounts—In some cases, car purchases can come with the
option of either an immediate rebate or low-interest financing.
Certain rebates are only offered to cash purchases.
Avoid Underwater Loan—When it comes to financing a
depreciating asset, there is the chance that the loan goes
underwater, which means more is owed on the asset than its current
worth. Auto loans are no different, and paying in full avoids this
scenario completely.
There are a lot of benefits to paying with cash for a car
purchase, but that doesn't mean everyone should do it. Situations
exist where financing with an auto loan can make more sense to a
car buyer, even if they have enough saved funds to purchase the car
in a single payment. For example, if a very low interest rate auto
loan is offered on a car purchase and there exist other
opportunities to make greater investments with the funds, it might
be more worthwhile to invest the money instead to receive a higher
return. Also, a car buyer striving to achieve a higher credit score
can choose the financing option, and never miss a single monthly
payment on their new car in order to build their scores, which aid
other areas of personal finance. It is up to each individual to
determine which the right decision is.
A trade-in is a process of selling your vehicle to the
dealership in exchange for credit toward purchasing another
vehicle. Don't expect too much value when trading in old cars to
dealerships. Selling old cars privately and using the funds for a
future car purchase tends to result in a more financially desirable
outcome.
In most of the states that collect sales tax on auto purchases
(not all do), the sales tax collected is based on the difference
between the new car and trade-in price. For a $30,000 new car
purchase with a $10,000 trade-in value, the tax paid on the new
purchase with an 8% tax rate is:
($30,000 - $10,000) × 8% = $1,600
Some states do not offer any sales tax reduction with trade-ins,
including California, District of Columbia, Hawaii, Kentucky,
Maryland, Michigan, Montana, and Virginia. This Auto Loan
Calculator automatically adjusts the method used to calculate sales
tax involving Trade-in Value based on the state provided.
Using the values from the example above, if the new car was
purchased in a state without a sales tax reduction for trade-ins,
the sales tax would be:
$30,000 × 8% = $2,400
This comes out to be an $800 difference which could be a reason
for people selling a car in these states to consider a private
sale.