Car Loan Calculator

Buying a car is a pretty big deal in anyone’s life. It may be not the biggest purchase you ever make, but it’s up there.

And with a big purchase comes a big loan – unless you have the money in your account already. (Wouldn’t that be nice?)

For everyone else, we have to take out a loan in order to buy our $30,000 piece of metal. This is often called financing by car dealerships.

The main things to look out for with car loans are:

• The principal: The full cost of the car (i.e. $30,000)
• The trade-in value: If you have an old car you can trade in, this will help lower your costs (i.e. $5,000)
• The interest rate: How much interest you’ll be paying on the loan (i.e. 4.99%)
• The term: How long you’re stretching your repayment period (i.e. 5 years)

How interest is calculated is a bit complicated because it’s subject to compound interest, which basically means your interest charges will gain interest, and your payments will lower the amount of interest you’re charged.

Let’s take a look at an example.

Let’s say your car costs $30,000 and you and the dealership agree on a 4.99% interest rate. But you also have your old car kicking around that you’re willing to trade-in, taking $5,000 off your price.

If you want to pay off your car in 7 years, you’ll be paying $353.23 a month. And at the end of it all, you’ll have paid $4,671.32 in interest.

If you can afford a bit more per month and would like to save on the interest, knocking down your repayment period to 5 years will save you $1,371.12 in interest, but increase your monthly payments by $118.44.

It’s all about what your needs look like now. If you don’t have a lot of expenses and can afford that extra monthly payment, you can save big. But if you’d rather have a little breathing room in your monthly budget, an extra $1,000 over the course of 5 years won’t kill you.