Buying a car is a significant investment, but for most people, it is a necessary purchase. Before making the purchase, most people will look at different models online and find the perfect car within their price range. Then, they will plug their information into an auto loan calculator to determine their monthly car payment.
However, many different factors can impact the cost of your monthly car payment. You can find ways to reduce your monthly payment by adjusting the various factors that affect the price. You can even plug different variables into the auto loan calculator to see what you need to do to get the perfect price for your car payment.
How To Estimate Your Car Payment
There are a few different ways that you can use most auto loan calculators. There are two calculation options: calculating for payment or price. When you calculate for payment, you will enter the car’s total purchase price, the number of months you will be paying back the loan, and the loan’s interest rate. The result of the calculation will show your estimated monthly payment. The calculator will also display a graph of how the principal balance decreases throughout the loan payments.
Another way to use the calculator is to calculate for price. When using the calculator this way, you will plug in the monthly payment you want to make, the number of months you will be paying back the loan, and the interest rate. The calculator will still display a graph showing the decrease in the principal balance, but it will calculate the total amount you can afford by considering the other factors.
No matter which calculation type you choose, there are sections that allow you to input your down payment and expected taxes and fees.
With this type of multi-use auto loan calculator, you can determine whether you can afford the monthly payment for a car that you want to buy. You could also use it to find a vehicle that fits in your budget based on how much you can afford in a monthly payment.
What Affects Your Car Payment?
There are a lot of different factors that can affect the cost of your car payment. You can change some of these factors over time with lots of hard work on your end. Some elements will only change if you adjust your expectations for the car you will buy.
We have gathered the top factors that can impact the cost of your monthly car loan payments. Below, we will discuss each of these factors and what you can do about each to bring down your monthly car payment costs.
The Price of the Car
The first factor that we have is also the most obvious one. If you enter all of your information into an auto loan calculator and find that the price is too high, the first thing that you should consider is finding a less expensive car. While there are other factors that you can adjust to bring the price down, the best thing that you can do is find a cheaper car.
Maybe the first car that you chose has a large touch screen media center or specially heated seats. These are luxury features that you can likely forego. Try to find the same model car but with fewer upgrades to see if you can get it for a lower price.
Frequently, it can be harder to secure a loan for a used car purchase. While buying a used car is usually the best way to reduce the overall price, it might not be practical if you need help with financing it. If you need to take out an auto loan, it might be easiest to purchase a less expensive new car than a used car.
Your Credit Score
When you apply for an auto loan, your credit score is one of the first things that a lender will check. Your credit score represents your ability to pay bills on time and your trustworthiness as a customer. If you have a low credit score, then you seem less reliable to the lender. Therefore, they will likely give you a loan with high monthly payments.
One way to get a loan with better terms and a lower monthly payment is to raise your credit score. The only issue with this is that it will take time. Your credit score will improve with consistent on-time credit card and loan payments, so you must show good faith on these for months before you will see a significant increase in your score.
While this is an effective way to get a better monthly payment for your auto loan, it can take a very long time. Often, when people are buying a car, it is because they need it immediately to get to and from work and other daily tasks. You might not have time to raise your credit score before you need to buy a car. In that case, you might want to try some of the other methods of getting a better monthly payment for your auto loan.
The Size of Your Down Payment
Another reason that a lender might give you an auto loan that requires a high monthly payment is that your down payment might be too low. When you don’t have enough money upfront, the lender might not have faith that you can pay off the entire loan. Therefore, they will require you to pay more each month to make up for the risk.
You can bring a larger down payment to the purchase to get a loan with lower monthly payments. With a more significant down payment, more money is going toward the principal balance rather than interest. That means that you will end up paying less money in interest throughout the loan. It may take some time to get enough money in your savings accounts for a sizeable down payment, but you will save money in the long run.
The Length of the Loan
Finally, another way to adjust your monthly payment is to change the length of the loan. Generally, short-term loans have higher monthly payments. However, you will typically end up paying less money in interest for a short-term loan.
When you take out a long-term loan, you will generally have lower monthly payments, but you will end up paying more in interest over the course of the loan.
The decision of whether to take a short or long-term loan will depend on whether you care more about having lower monthly payments or paying less money throughout the entire loan.
Should You Take A Long-Term Auto Loan?
Because they usually have lower monthly payments, many people choose to take out a long-term auto loan. People can usually fit these types of loans into their monthly budget much easier than the larger payments associated with short-term loans.
However, some people recommend staying away from long-term auto loans because you will end up paying more in interest by the end of the loan. At the end of the day, it is a personal decision whether you choose a short or long-term auto loan. You must do whatever is best for you and your financial situation.
