What is the Best Way to Compute a Car Payment?

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  • Written By: Amanda Lacasse
  • Edited By: Angela B.
  • Last Modified Date: 03 October 2018
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Buying a new or used car often necessitates financing the cost rather than paying the entire price up front. To be sure an additional monthly bill will not throw the household budget into chaos, a consumer should figure out ahead of time what the payment will be. To compute a car payment before actually buying a car, a buyer need to know the cost of the vehicle, the size of the down payment, the interest rate on the loan, and other expenses such as sales tax, destination charges and any fees. Most importantly, the consumer needs to have a good idea of how much he can afford to pay before determining how much the car he wants to buy will cost him.

Many financial web sites offer loan calculators to help consumers figure the amount of their monthly car payment. Such calculators often do not take into account the extra expenses that are both part of purchasing a car and required to correctly compute a car payment. Once a buyer has decided the price range he can afford and how much the down payment will be, the next step is to find out what other expenses need to be calculated into the car loan payment.


One important piece of information necessary to compute a car payment is the interest rate. Car dealers may or may not have competitive rates, so consumers should check with other financial institutions to compare. Another important factor is the term of the auto loan. Experts acknowledge that longer terms make a buyer's monthly car payment more affordable, but also note that taking a term for more than 48 months is risky. The extra interest payments add quite a bit more to the total cost of the vehicle and, if the car is stolen or considered a total loss in an accident, the insurance payment may not cover the remainder of the loan.

To accurately compute a car payment on a new car, the buyer needs to know each additional fee or charge that will be rolled into the cost of the vehicle. These fees almost always include sales tax, destination charges, title fees, and registration and/or license fees. These fees often add up to a sizable amount and could alter the size of a monthly car payment, so it is important to estimate them as closely as possible. Once these charges have been calculated and added to the total cost of the car, that information can then be plugged in to the "loan amount" section of an online auto loan calculator to give the buyer an approximation of what his monthly car payment will be.



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