Figure out what your monthly car payment would be before you head to the dealership. No surprises.
Aim for a down payment of at least 20% on a new car, or 10% on used. The shorter your loan term, the less interest you'll pay overall.
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Buying a car is a big deal for most of us - It is usually the second biggest purchase after a house. But here's the thing: dealerships make it way too easy to focus just on the monthly payment. They'll stretch your loan out to 7 years just to get that payment down to something you can swallow, but you end up paying way more in interest. That's where this calculator comes in handy.
It is pretty straightforward, really. You plug in the car's price, what you can put down, the interest rate you are looking at, and how long you want to take to pay it off. The calculator does the math to show you what you'll pay each month, how much goes to the bank in interest, and when you'll finally own the thing free and clear.
Everyone forgets about sales tax when they're calculating payments - that can add a couple thousand right there. And if you are trading in a car, that money comes right off the top before they calculate the loan. Also, your credit score makes a huge difference in what interest rate you get. Even half a percent can mean hundreds of dollars over the life of the loan.
If the payment seems too high, you've got options: put more money down, look for a cheaper car, or shop around for a better interest rate. Or hey, maybe consider a slightly used car instead of brand new - you'll save a bundle on depreciation.
A little knowledge before you head to the dealership can save you a lot of money
Check with your bank or credit union before you even step foot on a lot. That way you know what rate you qualify for, and the dealer has to beat it if they want your business.
A bigger down payment means you borrow less, pay less interest, and have a lower monthly payment. Plus, you are less likely to owe more than the car's worth a year from now.
That 7-year loan might look tempting with its low payment, but you'll pay way more interest. Try to stick with 5 years or less if you can swing the payments.
Watch out for prepayment penalties or weird fees buried in the paperwork. And make sure you understand the difference between buying and leasing before you sign anything.
Here are answers to some common questions about auto loans