Monthly Pay: $754.85
| Total Loan Amount | $40,000.00 |
|---|---|
| Sale Tax | $5,250.00 |
| Upfront Payment | $18,050.00 |
| Total of 60 Loan Payments | $45,290.96 |
| Total Loan Interest | $5,290.96 |
| Total Cost (price, interest, tax, fees) | $63,340.96 |
| Loan Breakdown88%12%PrincipalInterest |
Find Average Tax Rate and Fees in Your State.
Amortization Schedule
Month$0$10K$20K$30K$40K0102030405060BalanceInterestPayment
| Month | Interest | Principal | Ending Balance |
|---|---|---|---|
| 1 | $166.67 | $588.18 | $39,411.82 |
| 2 | $164.22 | $590.63 | $38,821.18 |
| 3 | $161.75 | $593.09 | $38,228.09 |
| 4 | $159.28 | $595.57 | $37,632.52 |
| 5 | $156.80 | $598.05 | $37,034.48 |
| 6 | $154.31 | $600.54 | $36,433.94 |
| 7 | $151.81 | $603.04 | $35,830.90 |
| 8 | $149.30 | $605.55 | $35,225.34 |
| 9 | $146.77 | $608.08 | $34,617.27 |
| 10 | $144.24 | $610.61 | $34,006.65 |
| 11 | $141.69 | $613.15 | $33,393.50 |
| 12 | $139.14 | $615.71 | $32,777.79 |
| End of year 1 | |||
| 13 | $136.57 | $618.28 | $32,159.51 |
| 14 | $134.00 | $620.85 | $31,538.66 |
| 15 | $131.41 | $623.44 | $30,915.23 |
| 16 | $128.81 | $626.04 | $30,289.19 |
| 17 | $126.20 | $628.64 | $29,660.54 |
| 18 | $123.59 | $631.26 | $29,029.28 |
| 19 | $120.96 | $633.89 | $28,395.39 |
| 20 | $118.31 | $636.54 | $27,758.85 |
| 21 | $115.66 | $639.19 | $27,119.66 |
| 22 | $113.00 | $641.85 | $26,477.81 |
| 23 | $110.32 | $644.53 | $25,833.29 |
| 24 | $107.64 | $647.21 | $25,186.08 |
| End of year 2 | |||
| 25 | $104.94 | $649.91 | $24,536.17 |
| 26 | $102.23 | $652.62 | $23,883.56 |
| 27 | $99.51 | $655.33 | $23,228.22 |
| 28 | $96.78 | $658.07 | $22,570.16 |
| 29 | $94.04 | $660.81 | $21,909.35 |
| 30 | $91.29 | $663.56 | $21,245.79 |
| 31 | $88.52 | $666.33 | $20,579.46 |
| 32 | $85.75 | $669.10 | $19,910.36 |
| 33 | $82.96 | $671.89 | $19,238.47 |
| 34 | $80.16 | $674.69 | $18,563.78 |
| 35 | $77.35 | $677.50 | $17,886.28 |
| 36 | $74.53 | $680.32 | $17,205.96 |
| End of year 3 | |||
| 37 | $71.69 | $683.16 | $16,522.80 |
| 38 | $68.85 | $686.00 | $15,836.80 |
| 39 | $65.99 | $688.86 | $15,147.93 |
| 40 | $63.12 | $691.73 | $14,456.20 |
| 41 | $60.23 | $694.62 | $13,761.59 |
| 42 | $57.34 | $697.51 | $13,064.08 |
| 43 | $54.43 | $700.42 | $12,363.66 |
| 44 | $51.52 | $703.33 | $11,660.33 |
| 45 | $48.58 | $706.26 | $10,954.06 |
| 46 | $45.64 | $709.21 | $10,244.86 |
| 47 | $42.69 | $712.16 | $9,532.69 |
| 48 | $39.72 | $715.13 | $8,817.56 |
| End of year 4 | |||
| 49 | $36.74 | $718.11 | $8,099.45 |
| 50 | $33.75 | $721.10 | $7,378.35 |
| 51 | $30.74 | $724.11 | $6,654.25 |
| 52 | $27.73 | $727.12 | $5,927.12 |
| 53 | $24.70 | $730.15 | $5,196.97 |
| 54 | $21.65 | $733.20 | $4,463.77 |
| 55 | $18.60 | $736.25 | $3,727.52 |
| 56 | $15.53 | $739.32 | $2,988.21 |
| 57 | $12.45 | $742.40 | $2,245.81 |
| 58 | $9.36 | $745.49 | $1,500.32 |
| 59 | $6.25 | $748.60 | $751.72 |
| 60 | $3.13 | $751.72 | $0.00 |
| End of year 5 |
| Year | Interest | Principal | Ending Balance |
|---|---|---|---|
| 1 | $1,835.98 | $7,222.21 | $32,777.79 |
| 2 | $1,466.48 | $7,591.71 | $25,186.08 |
| 3 | $1,078.07 | $7,980.12 | $17,205.96 |
| 4 | $669.80 | $8,388.40 | $8,817.56 |
| 5 | $240.63 | $8,817.56 | $0.00 |
Related Cash Back or Low Interest Calculator | Auto Lease Calculator
Purchasing a vehicle is a significant financial decision, and for many, it involves securing an auto loan. Understanding the intricacies of car financing is crucial to making informed choices that align with your budget and financial goals. Our Car Mortgage Calculator is designed to simplify this process, providing you with clear estimates of your monthly payments and total loan costs. Whether you’re a first-time car buyer or looking to upgrade your current vehicle, this tool and the information below will help you navigate the world of auto loans with confidence.
Understanding Auto Loans
Auto loans are secured loans provided by financial institutions to help individuals purchase vehicles. Similar to any secured loan, they require repayment of both the principal amount borrowed and interest over a set period. In the U.S., common loan terms range from 36 to 84 months. Failing to meet repayment obligations can lead to vehicle repossession by the lender, highlighting the importance of responsible borrowing.
Dealership Financing vs. Direct Lending: Choosing the Right Path
When it comes to obtaining an auto loan, two primary avenues exist: dealership financing and direct lending.
Direct Lending: This involves securing a loan directly from a bank, credit union, or other financial institution before visiting a dealership. Once you’ve agreed on a vehicle purchase with a dealer, the funds from your direct lender are used to pay for it. Direct lending empowers buyers by allowing them to enter dealerships with pre-approved financing, potentially giving them more negotiating power to secure better interest rates. Pre-approval also offers flexibility, as it doesn’t commit you to a specific dealership.
Dealership Financing: In this scenario, the auto loan process is initiated and finalized directly at the car dealership. Dealerships often work with captive lenders associated with specific car manufacturers. While the dealership handles the paperwork, the loan is often sold to an assignee, such as a bank or financial institution, which then services the loan. Dealership financing offers convenience, particularly for those who prefer not to shop around for loans or face challenges obtaining direct lending.
Car manufacturers frequently offer attractive financing deals through dealerships to boost sales. It’s wise for new car shoppers to explore these manufacturer-backed financing options first, as they can sometimes offer very low interest rates, such as 0%, 0.9%, or 1.9%.
Vehicle Rebates: Reducing the Purchase Price
To further incentivize car purchases, manufacturers may offer vehicle rebates, which are essentially cash discounts. Tax implications of rebates can vary by state. While some states tax rebates based on the original vehicle price before the rebate, others, fortunately, do not. States like Alaska, Arizona, Delaware, and many others do not tax cash rebates, offering additional savings.
Rebates are generally more common for new cars. While rare, some used car dealers might offer rebates, but determining the true value of a used vehicle makes this less frequent.
Decoding Car Purchase Fees
Beyond the vehicle’s price, several fees are associated with car purchases. These fees can typically be included in your auto loan or paid upfront. However, buyers with lower credit scores might be required to pay some fees upfront. Common car purchase fees in the U.S. include:
- Sales Tax: Most U.S. states impose sales tax on car purchases, which can often be financed with the vehicle price. However, states like Alaska, Delaware, Montana, New Hampshire, and Oregon are exceptions with no sales tax.
- Document Fees: Dealers charge these fees for processing paperwork like title and registration.
- Title and Registration Fees: These are state-levied fees for vehicle titling and registration.
- Advertising Fees: Regional dealers pay these to promote car manufacturers in their areas. They may be listed separately or included in the car price, typically costing a few hundred dollars.
- Destination Fee: This covers the cost of shipping the vehicle from the factory to the dealership, usually ranging from $900 to $1,500.
- Insurance: Auto insurance is mandatory in the U.S. for legal driving and is usually required before dealers process paperwork. Full coverage insurance is often mandatory for financed cars and can exceed $1,000 annually. Dealers may offer short-term insurance for processing purposes.
Remember to factor in these fees when using a car mortgage calculator for an accurate estimate. If fees are financed, ensure “Include All Fees in Loan” is checked. If paying upfront, leave it unchecked. Always question and seek clear explanations for any unusual charges from a car dealer.
Smart Auto Loan Strategies
Preparation is Key: Being prepared is paramount for securing a favorable auto loan. Before visiting dealerships, determine your budget and what you can comfortably afford. Research desired vehicle makes and models and their market prices to negotiate effectively with salespeople. Obtain quotes from multiple lenders and consider pre-approval for a loan through direct lending to strengthen your negotiating position.
Credit Matters: Your credit score and, to a lesser extent, your income significantly influence auto loan approval and interest rates. Excellent credit often translates to lower interest rates, saving you money over the loan term. Improving your credit score before applying for a car loan can lead to better loan terms.
Cash Back vs. Low Interest Dilemma: Car manufacturers sometimes offer a choice between cash rebates and lower interest rates. A rebate reduces the car’s price upfront, while lower interest can save on interest payments long-term. The better option depends on individual financial circumstances. Use a Cash Back vs. Low Interest Calculator to evaluate these options.
Early Loan Payoff: Paying off your auto loan ahead of schedule can shorten the loan term and reduce total interest paid. However, some lenders may have prepayment penalties or restrictions. Carefully review loan terms regarding early payoff before signing any agreements.
Exploring Alternatives: While new cars are appealing, consider purchasing a pre-owned vehicle, even one just a few years old, as they often offer substantial savings due to depreciation. New cars can depreciate significantly (over 10%) as soon as they are driven off the lot. Leasing, essentially a long-term rental, is another option for those prioritizing lower upfront costs and driving a new car more frequently. Explore our Auto Lease Calculator for lease calculations. Also, consider if you truly need a car. Public transport, carpooling, biking, or walking are viable alternatives in some situations.
The Advantages of Buying a Car with Cash
While auto loans are common, purchasing a car outright with cash offers several benefits:
- No Monthly Payments: Eliminating monthly payments provides financial and emotional relief, freeing you from long-term debt obligations and late payment risks.
- Interest-Free Ownership: Paying cash avoids interest charges, reducing the overall cost of car ownership. For example, a $32,000 loan at 6% for five years accrues over $5,000 in interest.
- Financial Flexibility: Full ownership grants unrestricted rights to sell, modify, or choose less expensive insurance coverage without lender limitations.
- Prevents Overspending: Cash purchases encourage budget consciousness, preventing the temptation to overspend on a more expensive car by stretching loan terms, a tactic sometimes encouraged by dealerships.
- Potential Discounts: Cash purchases might qualify for specific rebates not available with financing.
- Avoids Underwater Loans: Paying cash eliminates the risk of owing more on the car than it’s worth (an underwater loan), a common concern with depreciating assets like vehicles.
However, financing can be strategic if very low interest rates are available and your funds can earn higher returns elsewhere through investments. Also, responsible loan management can improve credit scores. The best choice depends on individual financial circumstances and goals.
Understanding Trade-in Value
Trading in your current vehicle at a dealership can provide credit towards a new car purchase. However, trade-in values offered by dealerships are often lower than private sale values. Selling privately and using the proceeds for a new car purchase typically yields a better financial outcome.
Many states with sales tax on car purchases (but not all) calculate the tax on the difference between the new car price and the trade-in value, reducing the taxable amount. However, some states like California and Maryland do not offer this sales tax reduction for trade-ins. Our car mortgage calculator automatically adjusts sales tax calculations based on state-specific trade-in policies. In states without trade-in sales tax reductions, private car sales might be more financially advantageous.
