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How to Calculate a Car Loan Payment

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A young couple buying a new car
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When purchasing a car it is nice to be able to know how to calculate your car loan payment. The math involved can be a very overwhelming if you do not use math often. Knowing the right information to make the calculation and finding a good car loan calculator can save you a lot of time. Knowing your car loan payment amount lets you budget accordingly and figure out if the car is within your budget.

Factors you need to know about the car and the loan terms:
  • Overall Car Costs: A lot of different things need to be figured into your final financing costs. Include taxes, titling fees, warranties, and prior car roll over amounts. Subtract rebates, down payment, and trade-in value of your prior vehicle. Once you include all the numbers that is the final amount you are actually financing.

  • Loan Terms: You will need to know the interest rate in which you qualify for and the length of the loan. Determine the length of your loan by months. Car loans are commonly 36, 48, 60, and sometimes even 72 months long.
Do the Math:

If you are really dying for a math lesson, oakroadsystems.com gives you the math formula and walks you through the loan payment calculation. The equation uses basic algebra and is not rocket science, however it is fairly far beyond basic multiplication and division. It can be satisfying to figure your loan payments out yourself mathematically, but for convenience and speed it is not recommended.

Use a Car Loan Payment Calculator:

Skip the hassle of math formulas and get to your payment amount faster by using a good car loan payment calculator. Save lots of time by plugging in your basic information listed above. A calculator makes it easy to input different combinations of numbers. It allows you to do side by side comparisons of different loan interest rates and car costs.

Some loan calculators allow you to check how increasing your monthly payment affects how fast you can pay your loan off. It is these variables that can be very interesting and help you reduce your debt. Technically you can use car loan payment calculators on any of your loans. As long as you know your loan factors the calculator will work.

Analyze the Information:

Once you know what your car loan payment will be, use the information wisely. Check around for a lower interest rate or try to do what you can to reduce the length of your loan. It is never a good idea to obtain a car loan based on the monthly payment alone. Lenders or car salesmen can extend your loan to reduce your payment but you pay a lot more overall. A lot of times extending a loan can cause you to owe more than the vehicle is worth. If this is your only option, be sure to check into gap insurance.

Making educated decisions about your finances will keep your finances in good health. Having a good idea what a new car is going to set you back monthly can prevent surprises at the time you sign the official documents. Review your budget and feel good knowing you are making an educated purchase.

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