Tips on How to Keep your Car Loan Payments in Check

CarFinance.com’s Top Tips for Calculating Loan Payments

Before you step foot on the car lot, check out these tips on how to calculate your loan payments.

Toyota, Honda, Nissan… Highlander, Altima, Accord – we’ve been thinking a lot about cars lately, because it’s time to replace Mater. Mater, named by Miss M, is my husband’s 97 Honda Accord. Even though it needs replacing, she named the car mater not because it’s old but because Mater is funny which reminds her of her Dad. He should appreciate that she thinks he’s funny now, because I’m sure that will change somewhere around the age of fourteen.

As I mentioned in an early post we fell in the love with the Toyota Highlander and in a perfect world that’s what I would be driving right now. But our wallets didn’t agree with the investment so we are still shopping around and still debating on a brand or model.

I’m a big believer in keeping payments low, so we spent a lot of time researching and calculating how much we can pay up front and how much we are willing to pay in monthly payments. That way when it’s time to walk on the sell’s floor, we can get right down to business.

Last time we bought a car, we were there SO LONG the sales rep bought us a pizza for dinner. This time we are going in prepared. Are you planning on purchasing a car this summer?

These tips from CarFinance.com will help car buyers make informed budgeting and transportation decisions.

Monthly Payment
Understand what level of monthly payment you can afford by doing a detailed, hyper-honest budget-setting exercise. Take your monthly income minus all payroll tax or estimated monthly tax deductions, then subtract EVERYTHING: monthly mortgage payments or rental costs, credit card and other loan payments, health and car insurance (calculating how much more the latter will be with the new car) and get serious about estimating real-world living expenses (from food to fun, etc.) by looking at the last 6 months of your real spending (bank statements, withdrawals, checks, etc.) from your monthly income. What is left over is what you can afford each month.

Know your APR Upfront
The higher the APR (Annual Percentage Rate – the cost you will pay on the loan, including your interest rate), the higher the monthly payment – and the more you will ultimately pay for the car. Waiting until you get to the dealership to find out your APR could mean you drive off in a vehicle that you can’t afford. The good news is that today you can get pre-approved online for a loan in minutes, providing you with key numbers, including your APR, to help you make a rational decision on which cars you should be looking at.

Length of Loan
Using this calculator (http://www.carfinance.com/auto-loan-calculators/auto-loan-payment-term-calculator), you can determine how long it will take to pay off your loan based on the monthly payment you can afford and your APR. For a given amount financed, the lower your monthly payments, the longer the term of your loan, but the longer the term, the more interest you pay, meaning you will ultimately pay more for your vehicle. Calculate what you will be paying overall to determine if you are willing to pay extra in the long run in order to pay less each month, or if you should look at a lower-priced vehicle.

Rebates VS Rates
Understand the difference between the benefit of a cash rebate versus lower monthly interest rate before including it in your calculations. In many instances, you have the option of a manufacturer cash rebate or a low APR. While a low APR sounds enticing, remember that a cash rebate decreases the price of the vehicle, thereby lowering the amount you need to borrow, reducing your interest expense and less overall $$$ spent in the long run. If you trade your vehicle in early, you can lose much of the benefit of the low interest rate. Plus if you have less than perfect credit you may not be eligible for the low interest rate anyway.

Total Price of Vehicle
Understand the difference between the benefit of a cash rebate versus lower monthly interest rate before including it in your calculations. In many instances, you have the option of a manufacturer cash rebate or a low APR. While a low APR sounds enticing, remember that a cash rebate decreases the price of the vehicle, thereby lowering the amount you need to borrow, reducing your interest expense and less overall $$$ spent in the long run. If you trade your vehicle in early, you can lose much of the benefit of the low interest rate. Plus if you have less than perfect credit you may not be eligible for the low interest rate anyway.

Go Shopping
Now that you know what you can afford, you can research online on sites like Edmunds.com to find vehicles that fit your budget. Many online sites offer a search by monthly payment or search by the amount you plan to spend; just be sure you are using the amount that you can afford and that their formulas take into account all the information you have accrued. Once you have found the vehicle that you can afford and want to buy, go ahead and get financed online so your conversation at the dealership is about the vehicle itself, and not the financing.

Disclosure: I was selected for participation in the TWIN community through a program withClever Girls Collective. I did not receive any compensation for writing this post, or payment in exchange for participating. The opinions expressed herein are mine, and do not reflect the views of the Toyota.

Do you have any tips for future car buyers?