While you can’t calculate your monthly payment to the penny, having a good estimate will put you in the driver’s seat at the dealership. Here’s how to use this calculator and a look at the different numbers that will make up your monthly payment.
Car price: In this field, put in the price you think you’ll pay for the car after negotiations. As a starting point for new cars, you can put in the vehicle’s sticker price (also called the MSRP). In most cases, you’ll be able to negotiate a discount from the sticker price. Manufacturer rebates also may lower the price. Remember to include the cost of options and the “destination fee” that is charged for all new cars.
If you’re buying a used car, estimating the sale price is a bit trickier. You can start with the seller’s asking price, but keep in mind that you may be able to negotiate it lower. To get an idea of a fair price, you can use online pricing guides or check local online classified ads for comparable cars.
Trade-in and down payment: Here, put in the total amount of cash you’re putting toward the new car, plus the trade-in value of your existing vehicle, if any. You can use online sites for appraisals and pricing help. When using a pricing guide, make sure you check the trade-in value and not the retail cost (the price at which the dealer sells the car). If you have no trade-in, just enter your down payment amount.
For new cars, it’s smart to have a down payment of at least 20%. This prevents you from being “upside down” — owing more than the car is worth.
Interest rate: If you know your credit score, you can estimate the interest rate you’ll be offered. You can also check the car loan interest rates offered by online lenders. Rates on new cars will be lower than for used cars. Sometimes, carmakers’ finance companies offer 0% financing.
Number of months: Enter how long you plan to take to pay off the loan. Car loans commonly range from two years up to six years, but the longer you stretch it out the more you’ll pay in interest overall. Think twice before taking a car loan longer than 60 months.
Results: There’s no need to search for a “calculate” button. Simply put in your numbers and the results will update immediately. In addition to looking at the monthly payment result, be sure to face the cold, hard reality of how much you’ll pay in interest. If that’s not sobering enough, look at the total amount you will spend on the car (excluding the down payment).
You have a payment estimate. Now what can you do with it?
Understand, this calculation doesn’t include taxes and fees. You’ll have to pay state and local sales tax, a documentation fee (which varies widely) and registration costs. The simplest way to handle this: Add 10% to the loan payment you came up with.
Even though this is only an estimated loan payment, it will give you valuable information before you sign on the dotted line:
- You can see if the car you want fits into your budget. A useful rule of thumb is that your car loan payment shouldn’t be more than 20% of your monthly take-home pay.
- Having an estimate in hand can protect you from overpaying at the dealership. If the salesman hits you with crazy-high payments, you’ll know that something is wrong — or that you’re shopping at the wrong dealership.
Use this calculator as you begin the journey of shopping for a new car. Revisit the calculator as you get quotes from dealers or after getting a loan offer from a lender. Try entering different down payment amounts and loan lengths to see what fits best in your budget. As your numbers become more specific, your monthly loan payment will become more accurate. If you run these simple calculations ahead of time, you’ll wind up with a loan you can live with.
Source for credit range information in calculator: State of the Automotive Finance Market, Experian Information Solutions, Inc.
Updated March 1, 2017.