How to Calcualte Your Monthly Auto Loan Repayments

Research shows that over 75% of prospective vehicle owners will acquire their first car, not by handing over the full cash or writing the dealer a check, but through the less taxing bank finance option. However, this mode of purchasing vehicles requires one to have sound knowledge of the exact amount of money that they will have to part with per month or year. It also requires strict budgeting, to ensure one can make the monthly repayments without fail. So it is important to keep up with developments in car loans and prices on car buying sites.

Here’s a quick overview on how to calculate your auto loan repayments

Exactly how much do You Intend to Finance?

As usual, you have to pay a slice of the total value of the car ( as a sizable down payment ) before negotiating with the dealer over the monthly payments that you have to make. So, you can either pay this down payment in cash or hand over your old car as a trade-in asset. And considering that some states/countries will not allow a sales tax deduction on vehicle trade-ins, you will be expected to absorb this amount during purchase. Also, you may have to deduct your old car’s trade in value from the total value of the new car ( as per the agreement with the dealer ) and add any registration fees that the dealer is charging you, a majority charge approximately 500 dollars. Besides, don’t forget to include any rebates, discounts, and special deductions that you might qualify for, such include brand and dealer loyalty discounts.

Calculating the Exact Monthly Auto Loan Payments

A car loan is similar to a business loan in the aspect that the creditor will lend you a principal amount ( which is, of course, the total cost of the car less the above-mentioned deductions ), and you will pay the creditor back with interest over an agreed period. The total interest accrued and the principle is typically divided over the span of the life of the car loan to facilitate easy repayment. There’s a financial formula which creditors usually use to arrive at the final monthly payment. It is known as the loan amortization formula. In simple language, it is essentially the integration of the principal, the interest per every month, and the total number of months which constitute the repayment schedule.

Extras

It is also possible to make use of Microsoft Excel to calculate your monthly auto loan payments to the nearest dollar. The easiest way is by making use of the PMT function in your M.S Excel spreadsheet software. You will need sufficient information concerning your upcoming loan such as the length of the repayment period, the interest rate from the bank, and of course the principle amount borrowed from the creditor/bank. Apart from Ms.Excel, there are hordes of other online loan calculating software/programs scattered all over the interwebs. The bottom line here is that it is a general formula and anyone with basic arithmetic skills can apply it.

It is imperative to learn how to calculate the expected monthly payments of used cars for sale to minimize the chances of you overestimating your financial muscle and suffering bankruptcy later. Otherwise, you could risk an expensive bank repossession or over straining your operating and working budget.