Unless you’re one of the lucky few who can buy their car outright, if you’re in the market for a new or used car, you need to think about how you are going to finance your purchase. Ideally, you should calculate the loan you can afford before you make a final decision on a car so that you know what type of car you can realistically expect – too many people fall in love with a car, then realize too late that they can’t afford the monthly payments. Does the idea of calculations sound difficult? Luckily, there’s a car loan formula to help you work it all out quickly so that you can get on with the fun part – shopping for your car!
The first thing to do as part of the car loan formula is to work out what monthly payments you can realistically afford – that doesn’t mean what you can pay if you live on bread and water and go without electricity for the next year, but what you can afford and still live comfortably. When you start to look at loans, work out what term would suit you best – 12 months, or perhaps a longer, a 24 or 36 month term. When using the car loan formula to work out what your outgoings on the car will be, remember that you’re not just looking at the price of the car divided by however many months you agree to pay it off – you must also add the interest rate on top of the basic cost of the car. Generally, the longer the term the lower the interest rate but of course you will end up paying more over a longer period, it just might hurt your wallet less each month.
There are a number of sites online that have amortization calculators, which use a car loan formula to compute the interest on the loan so that you can work out an accurate figure for your monthly payments. Pick a car and a payment option that you think looks reasonable and use it as an example to use the car loan formula on. Add that information to the calculator and it will automatically add the other costs, which must be thought about as they all add up – the sales tax and title, registration and other fees. If you can put a down payment on the car, add in this information and that will automatically be subtracted from the total amount. This handy car loan formula could save you hours working out costs, however don’t forget to also think about other outgoings a car will require, including insurance, fuel, service and maintenance. The car loan formula can be used again once you have settled on the car that you can afford.
Now you have worked out the loan you can afford with the car loan formula, you can head down to the dealership armed with that knowledge so there will be no chance of them ripping you off, and if you’re buying your car privately, you now know what you can afford without having to live on bread and water!