Ever wonder what a car loan calculator can do? If you’re planning on buying another car anytime soon, it’s probably a good idea to learn how to use one. This article will explain how it works and why you should use it.
Planning for a new car purchase is both exciting and a bit daunting. But, with so many financing options out there, it can be tough to understand your monthly payments over the life of a car loan. Here’s where a car loan calculator comes in handy.
This simple tool can help you make financially informed decisions about your vehicle loan. It can help you align payments with your budget and ensure you don’t get stuck with unexpected expenses down the line.
Why Use a Car Loan Calculator?
Using a car loan calculator is a good first step to understanding the full financial picture of your next vehicle purchase. Here are key reasons why you should use this tool:
Budget Planning
A car loan repayment calculator gives you a clear view of what your monthly payments might look like. This will be based on inputs like the loan amount, interest rate and loan term. By adjusting these values, you can see how different scenarios will impact your monthly finances. This also helps you assess whether the purchase fits into your current budget and if there’s room for other vehicle expenses like insurance or registration fees.
Saving Opportunities
This tool does more than just to calculate car loan repayments. It also allows you to test out different loan terms or deposit amounts. This makes it easy to see where you could save. For example, you can compare a shorter-term loan with a lower interest rate versus a longer one, allowing you to identify which option saves you the most over time.
Transparency of Costs
When using a car loans calculator, you’ll see a clear breakdown of principal versus interest. This transparency can help you understand where your money is going each month and how much interest you’ll pay over the life of the loan. Some calculators even show an amortisation schedule, detailing how each payment affects the loan balance.
Steps to Use a Car Loan Calculator
No matter what car loan calculator you choose to use, the features and information that it needs are usually the same across the board. Here are some of the usual steps to follow when you use one:
Step 1: Gather Your Information
Before you start, have the following details ready:
- Car Price – The total cost of the vehicle you’re planning to buy.
- Deposit – How much you’re able to pay upfront.
- Loan Term – The length of time over which you’ll pay the loan, usually in months (e.g., 36, 48 or 60 months).
- Interest Rate – Enter an estimated interest rate you’re likely to receive. If you’re unsure, try a few different rates to see how they affect payments.
Step 2: Input Your Data
Most car loan calculators have standard fields:
- Loan Amount – This is usually the car price minus any deposit.
- Term – Loan duration, typically between 3 and 7 years.
- Interest Rate – Annual percentage rate (APR) from your lender.
- Trade-In Value – If you have a car to trade in, enter its estimated value here.
Step 3: Analyse Your Results
After inputting the details, the calculator will show:
- Monthly Payment – How much you’ll need to pay each month.
- Total Interest Paid – How much total interest you’ll pay across the loan’s life.
- Total Loan Cost – The combined cost of principal and interest, helping you see the full price of financing the car.
Let Muscle Money Help You With Your Car Loan Calculations
A car loan calculator is a valuable tool that can save you time, stress and money when planning a vehicle purchase. By testing different loan scenarios, you’ll gain a clear picture of what’s financially feasible, helping you choose a loan that aligns with your budget and financial goals.
Note, however, that while calculators are great for estimates, they don’t replace personalised advice. Muscle Money can provide you with more than just estimates for a few scenarios. We can help you find the best deals for car loans based on your specific circumstances. Contact us today to find out more and to get started on your next vehicle purchase.
Caleb Waye-Harris, Senior Manager of Asset Finance at Muscle Money, has almost 15 years of relevant experience in the finance industry. His extensive background includes project management, consumer and commercial lending and asset-based lending.
