Aug. 26, 2022

# How Do You Calculate Monthly Car Payments?

For the majority of people, purchasing a new or used car is not a purchase that is made by writing a check or handing over cash for the full amount. Instead, at least part of the total price of the vehicle is generally financed. If you do finance a car, it is imperative that you understand precisely how much you will be paying each month over the length of the loan, otherwise, you could end up going over budget.

### What amount should you finance for a car?

First, you must settle the price of the car that you are buying with the dealership or seller. In some cases, you may pay a lower price than the asking price by negotiating with the seller. However, once you agree on a price, that’s your starting point for deciding how much to finance.

For example, let’s say you negotiate a deal to buy a new car for \$19,055. In this example, you have a down payment and your old car to trade in, and you are eligible for a customer cash rebate. You also plan to finance the remainder of the cost with an auto loan.

### Calculate the sum of state sales tax and add it to the estimated purchase price

Furthermore, find out how much tax and title fees your state charges. These need to be added to the total price of the car. Keep in mind that some states don’t permit a deduction of sales tax on trade-ins; you are required to pay tax on the total cost.

Suppose your state charges a seven percent sales tax and an additional \$200 for tags and title fees.

• The sales tax would be \$19,055 x .07 = \$1,335 + \$200
• The total price of the car would now be \$20,590.

If you are trading in your old car to help pay for the new car, deduct the trade-in value of your old vehicle from the price of the vehicle. As soon as you have settled on a trade-in value with the dealership, subtract that amount from the purchase price of the vehicle.

For example, let's say the dealer offers you \$3,000 for your trade-in. This brings the price of the car down to \$17,590. (\$20,590 - \$3,000 = \$17,590).

### Add on any fees that the dealer charges

Dealer fees differ depending on your state and whether you are buying a new or used car. Destination fees pay for the charge of delivering a new vehicle from the factory to the car dealership. Documents fees or conveyance fees include loan processing fees and service and handling fees. Certain states have caps on document fees, so do some research beforehand.

For example, the dealer charges you \$500 in destination and vehicle preparation fees. This brings the price of the vehicle to \$18,090. (\$17,590 + \$500 = \$18,090).

### Subtract rebates or incentives for which you qualify

You may be eligible for these rebates and incentives when purchasing a new car. Manufacturers and car dealers use them to navigate customers away from the competition and ensure brand loyalty. Research the terms and conditions of existing incentives and rebates beforehand to potentially save thousands of dollars on a new car.

• Usual rebates consist of customer cash for brand loyalty and dealer cash that may be passed along to the customer.
• Common incentives consist of special lease programs and low annual percentage rate (APR) financing for customers with outstanding credit scores.

If you meet the requirements for a brand loyalty rebate of \$1,000. The cost of the car now comes to \$17,090. (\$18,090 - \$1,000 = \$17,090).

### Deduct the down payment from the loan.

A down payment is the amount of money that you are paying at the time of signing. This amount will differ from sale to sale and is based on what you can afford to pay out of pocket. Subtract that amount from the amount you want to finance.

For example, if your down payment is \$2,000 it would take the total cost of the car down to \$15,090 (\$17,090 - \$2,000 = \$15,090).

• The total you need to finance or borrow from a financial institution is \$15,090.

The finance house will then be able to determine the accurate risk, monthly repayment, and interest rate.

Following the steps above in a sequential order makes it much easier to calculate your monthly car loan payments. Many people will also simply choose to use an online auto loan payment calculator to estimate their monthly payments. Calculating your monthly payments using an auto loan calculator is as simple as submitting the following information:

• New car price
• Loan term
• Interest rate
• Down payment
• Sales tax
• Title, registration, and other fees

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