If you’re looking for a car loan, then you may be wondering how much you can afford and what it is going to cost. Using a car loan estimator allows you to calculate how much you will be repaying on a monthly basis. You can then make sure your car loan meets your budget before contacting a provider and beginning the application process.
Before you use a car loan payment estimator
Using a car loan estimator is a great way of understanding what you can afford to borrow. A useful first step is to be clear on your budget. Having a clear idea of how much money you can afford in repayments will allow you to ensure that any numbers generated by the car loan estimator will be affordable going forward.
Start by totalling your current income and subtracting your existing costs. This will show you how much money you might have available to cover repayments. Being sure that you can afford the estimated repayment level is an essential part of getting your car loan application approved. It’s also important for you – it will protect you from financial difficulty going forward.
If you already have a car, then your existing costs should include the cost of ongoing maintenance, fuel, and additional costs such as insurance or registration. If you’re changing models, keep in mind you may need to update these costs to reflect your new car.
If you don’t currently run a car, then it’s worth spending a bit of time doing some desktop research to estimate your running costs. Getting an accurate picture of how much your car will cost you at this stage will make it more likely that you will be able to afford to run it in the future. Don’t forget to build these costs into your budget before using the car loan estimator.
Using a car loan estimator to establish how much you can borrow
When you apply for a car loan, your provider is going to want to be sure that you can afford to make the repayments. You can use the car loan estimator to make sure that your repayments will fall within your budget expectations.
If you already have a car in mind, enter in the amount you will need to borrow to make your purchase. If you don’t know how much your car is going to cost, you can be flexible with the amount and use the combination of loan amount and term to set a budget before you go shopping.
Remember to take into consideration any deposit or estimated trade in value when entering the loan amount into the car loan estimator. You can bring down the repayment level on the loan by increasing the term. Conversely, it’s important to be aware that extending the life of your loan will also increase your interest costs.
You can also use the car loan estimator to understand the interest cost of your loan. Multiply the calculated monthly repayment by the total number of repayments (loan term) then subtract the original loan amount. This will give you an estimate of the total interest across the life of the loan.
Using a car loan estimator to gauge term and repayments
Are you finding that you need to push out the term of your loan to bring down the repayment level? There are other options available if you would like to shorten your term but don’t have cash available at this stage to do so.
Making additional payments on your loan across its term is an effective way of repaying your debt faster. You may not have the cash available to pay more from regular income now. But if you enjoy an increase in salary, a bonus payment, another form of income or a windfall, you may be able to pay more onto your loan (quick-tip: make sure you know if there are any fees for doing this).
The longer the term of your car loan, the more likely you will be able to pay more. It could be worthwhile negotiating a level of payment flexibility when you set up your car loan. Ask your provider about the options and find a loan structure to suit your situation.
Are you ready to buy your next car?
Now that you have worked out what you can afford on the car loan payment estimator, you are probably ready to start shopping.
A pre-approved car loan is a great way of putting yourself in control of any purchase negotiations. It will also help you turn your estimated budget into a reality so you know exactly what you can pay for your next set of wheels.