Car loan calculator
Last updated: January 1
This car loan calculator helps you determine which vehicle loan makes the most financial sense by comparing the interest rate and loan term of each financing offer. Interest earned from investing your savings may impact your decision. A shorter loan term on the same vehicle results in higher monthly payments. However, once the term ends, those payments could earn interest and therefore generate savings for you. A longer loan term may keep your monthly payments down, but you forgo possible interest earned on your savings. Keep in mind that the length of the loan term may also affect the interest rate.
How to use the car loan calculator
Shopping around for a car loan? Wondering which loan offer best meets your budget? As you may know, car loans can come with a lot of variables and numbers. Sifting through all the information and details of each can be overwhelming. That’s where Allstate’s loan calculator comes in. The car loan calculator breaks it all down to into 6 easy inputs.
Here is an overview of each input that you’ll enter to give you an idea of how they can affect your loan.
The purchase price is how much the vehicle costs altogether. This’ll typically include registration fees, sales taxes and transportation costs that the dealership passes onto you, the customer, says Credit Karma.
State and federal tax rate
Your state and federal tax rates refer to the percentage of your income that you owe to the state and the federal government. If your state has an income tax, its official website should have a breakdown of tax rates per income bracket. Likewise, the IRS website should have up-to-date information about federal income taxes. You can also refer to your tax returns. Combine both your state and federal tax rates when filling out this field.
Savings interest rate
If you have a savings account, it may accrue interest. Savings interest is how much your bank or financial institution pays you just for holding your money with them. It’s typically paid monthly, according to Forbes.
Here is where you’ll begin entering the information for each loan that you’ll compare. The loan term is how many months it’ll take to pay off your loan.
Shorter loan terms usually lower the overall cost of the loan, says the Consumer Financial Protection Bureau (CFPB), but have higher monthly payments.
Longer loan terms, on the other hand, typically have lower monthly installments but higher interest rates. They also run the risk of being “upside down” on a loan – which is a way of saying that you’ll owe more than the vehicle’s actual value.
This is how much money you pay upfront. The higher the down payment, the lower the interest tends to be. The standard is 10% down for used vehicles and 20% down for new vehicles, according to Car and Driver.
The interest rate helps cover the cost of the car loan and is represented as a percentage of the entire loan amount. The interest rate doesn’t include other fees that come with included in a loan. Interest rates differ from annual percentage rates (APR), which are similar but do include said fees.
If you’re wondering how much car payments might cost you before shopping for loans, then check out a car payment calculator. Enter similar inputs – including loan amount, loan term and interest rates. It’ll crunch the numbers and give you a detailed estimate. You can increase or decrease each input until you find a comfortable monthly payment that you can use as a baseline when shopping around.
Consider the opportunity costs
Getting a car loan – also called “financing” – allows you to purchase a vehicle without having to pay the whole price up front. But it’s important to weigh the potential upsides and downsides when it comes to taking out a car loan.
The upside of getting a car loan
Financing a car can come with great perks, including the following:
- Car loans allow you to purchase a more expensive vehicle even if you don’t have enough cash to cover the whole cost upfront.
- You’ll own the vehicle once you’ve paid off the car loan – plus, you can turn around and sell it to recoup some of the costs.
- Once you pay off the car, you can drop certain coverages your lender may require, like gap insurance.
- You can negotiate the terms of your auto loan, according to the CFPB – for instance, the interest rate, loan term and down payment.
The downside of getting a car loan
There are potential pitfalls of taking out a car loan, depending on your situation. Here are a few to mull over:
- Monthly payments can be a bit steep, according to Bankrate, depending on the current state of the economy. Costs also depend on other factors, like your vehicle, loan term and how much you’re willing to pay upfront.
- You have to consider other costs, including registration fees, and certain coverages required by your lender, such as gap insurance (though as mentioned above, you can drop gap coverage once you’ve paid off your vehicle).
- Longer loan terms can reduce monthly payments, but as pointed out earlier you may run the risk of being upside down on your loan – also called “negative equity.”
- Your funds get tied up into monthly payments when they could’ve been used toward paying off other debts, like credit card payments, house payments, saving for retirement, etc.
Deciding whether to take out a car loan
Whether it’s best to take out an auto loan ultimately boils down to your financial situation and what you want out of your vehicle. Ask yourself what you can afford.
If you can’t pay for a car upfront, for instance, then taking out a loan may be essential in purchasing a car. Use the Allstate car loan calculator above to gauge whether you can afford the monthly costs to pay off the car loan.
You might explore other options outside of vehicle loans as well. For example, while leasing a vehicle has more restrictions, it typically has lower monthly payments, according to Bankrate. It’s especially alluring to drivers who want a luxury car at an affordable price, and who don’t want a vehicle for more than a few years at a time.
Some lenders also let you make payments with credit cards, which could potentially lower monthly costs, according to Car and Driver. That’s because credit card companies often let you pay only part of the total balance. But it’s important to understand the risks and drawbacks of paying by card.
However you go about it, make sure you do your research ahead of time, and understand what you want out of your vehicle.
There is more to look at than just payments
Remember, there are typically other fees and costs related to auto loans that are important to factor in when shopping around. Here’s a breakdown of them.
The interest rate is the most obvious cost but it’s worth thinking about when you purchase a loan. It helps fund the auto loan itself and is expressed as a certain percentage of the entire loan.
Typically, the more you put down, the lower the interest rate tends to be. As mentioned above, shorter loan terms typically have lower interest rates but higher monthly installments. Interest rates are also determined by other factors, like your vehicle’s age and your debt-to-income ratio – which is the amount you owe divided by how much your gross income.
Annual percentage rate (APR)
The APR includes the interest rate plus other include fees, says the CFPB. The interest rate and APR can greatly affect the price you pay for getting a loan. APR and interest are two important measures of how much you’ll pay on a loan. All lenders are required to show you the APR before you commit to the loan, which you can use to shop around and find the best deal.
Vehicle registration fees
Every state requires vehicles to be registered with the department of motor vehicles – or transportation agency, says the National Conference of State Legislatures (NCSL). How fees related to the registration processed are determined vary from state to state.
The dealership may handle the registration process themselves, then simply charge you the related costs, adds Car and Driver. Fees may also be determined in part by your vehicle’s value.
Many auto loan lenders require drivers to carry gap insurance. It helps cover the difference between what you owe and what the vehicle is worth at the time of an accident. That way, the lender is protected from financial loss.
How much these insurance coverages cost depends on many factors – including but not limited to your particular vehicle, where you live, how much coverage you choose and your driving history. However, once you’ve paid off your car, you can drop gap insurance.
State sales tax
Most state require dealerships to pay a sales tax for each purchased vehicle, says Kelley Blue Book. But ultimately, they’ll add the cost of sales tax to the vehicle purchase.
Sales taxes vary by state but may take up a decent percentage of the purchase, according to Car and Driver. Trade-ins, however, may be able to help off-set the price of a new vehicle purchase.
Dealerships sometimes bake warranty costs into the overall costs, according to Car and Driver. Warranties may cover tire, wheels, powertrains and more. You don’t necessarily have to accept these extra costs – you just need to weigh the pros and cons of including a warranty fee. Alternatives to warranties may be having your own “rainy day” fund to cover maintenance costs.
Some fees may be negotiable, according to the CFPB, and could save you hundreds or even thousands of dollars. Negotiable terms and conditions may include:
- Loan terms
- Prepayment penalties
- Alarm systems
- Window tinting
- Certain warranties mentioned above
Knowing what these terms and conditions are can give you bargaining power when you shop around, adds the CFPB. It also helps to negotiate terms individually – for instance, negotiating the price with the dealer but getting better loan terms through a bank.
Note that you can’t negotiate terms and fees required by your local and state government – including taxes, title and registration costs.
Car loan FAQs
When shopping around for car loans, pay special attention to the interest rate, APR and the length of the loan, advises the CFPB. Shorter terms may mean higher monthly payments but lower interest – plus, you typically pay less on the entire cost of the loan. Additionally, the more you put down, the lower the monthly installments.
The easiest way to determine interest on an auto loan is to use one of the many online car loan interest rate calculators. Also, be sure to shop around and get interest rates from several lenders to find the best one.
There are pros and cons to paying off your loan early. Some of the pros include improving your debt-to-income ratio, owning the car sooner and saving money – for instance by dropping gap insurance and freeing up monthly cash for other debts, according to Forbes.
Downsides, warns Forbes, include prepayment penalties and missed opportunities to pay for other monthly debts higher – for instance, debts with higher interest rates.
Consider paying your debt off early if you don’t have other major payments, says Forbes. If you’re planning to make a major purchase, freeing up monthly payments could help. This is especially true with purchasing a house. Paying off your loan early can improve your debt-to-income ratio can help you secure a better mortgage, according to Bankrate.