1. Don’t use one!
At least until you’ve done your homework. Many people go straight to an auto loan calculator because it provides instant answers on how much an auto loan could cost you.
The problem is that this figure can be quite misleading, because there are a number of factors that you should check before using any calculator to find out how much you will have to pay.
These are detailed below, and while they will likely require a bit of research, they will most likely end up saving you a significant amount of money.
Most new cars come with what’s known as MSRP, which stands for Manufacturer’s Suggested Retail Price, commonly known as a tag price. This is the recommended price for the vehicle set by the manufacturer, also known as the list price.
This price is always negotiable, sometimes for quite large amounts. This means that you may end up paying significantly less in terms of actual price than you might think. What is important to note is that there are other factors that also affect the cost of the vehicle and that must be taken into account.
The MSRP can also be significantly negotiated if you are thinking about leasing a vehicle, something that many people do not appreciate or realize.
3. Initial payment
The initial payment is effectively the deposit that you will agree to deposit in the vehicle. Obviously, this reduces the amount you need to borrow and your subsequent repayment costs.
People usually think that the amount of the down payment is determined by their credit score; in fact, you can decide any amount of the down payment yourself. If you have significant savings, this may be a way to cut costs. Similarly, if you can take advantage of a zero rate or a low interest rate, it may make more sense to have a smaller down payment and benefit from the savings through a low interest rate.
4. Value trading
This number of people will have an existing car that they will want to sell or trade in for a newer one. If you trade one vehicle for another with a car dealer, you are likely to get much less in terms of cash than if you sold it privately. Swapping a car for a new model is done primarily because it is easier. Note that it can also blur the line as to the type of discount you are getting on the new model.
5. Sales tax
Whether you are purchasing a leased vehicle, some form of sales tax will likely apply. It is worth figuring out the cost of this when deciding what type of vehicle to buy.
Some vehicles may have a lower tax if you choose a hybrid version, an electric car, or a car with certain types of low emissions.
6 .Interest rate
Most people know what interest rates are and how they work with respect to auto loans. What people may not realize is that they can negotiate an interest rate, in the same way that they can negotiate the price of the vehicle. When a finance company or credit broker makes a financing offer, it is in many ways their initial offer.
They will want your business, especially if you have good credit. This means that, in many ways, they can likely be more flexible or negotiate than their original offer implies.
In any case, it is worth trying to negotiate a lower interest rate, either through direct negotiation or by offering a higher down payment or a longer term for the loan to be valid.
7. Loan term
The loan term is simply the number of months the loan is completed to renew.
Many people opt for a longer loan period because it reduces their monthly repayment costs.
Other people opt for a shorter loan term because, although it has higher monthly repayment costs, there is a lower overall cost in terms of interest charges.
Ultimately, it really depends on what is more important to the individual, having lower monthly repayment costs or a cheaper overall loan.
8. Dealer offers
Virtually all dealerships of all manufacturers will make offers on their vehicles. It’s standard sales practice and it can have significant benefits for customers, but it can also be quite confusing at times.
Dealer bids can be made nationally, locally, or both. Offers can be related to certain vehicles, low or no interest rates, pre-approved customers, customer categories such as military and students, and can also apply at certain times of the year.
Deselecting these offers can be tricky, especially if they are based on the vehicle’s suggested retail price (MSRP). However, it is worth understanding the intent behind them and using that to your advantage when negotiating the price and terms and conditions of the loan.
9. Buy online
Most car dealerships have an Internet sales department. This can be a specific department or integrated as part of your overall sales team. In any case, they expect a large number of clients to actually do much of the trading online, as well as over the phone, before physically visiting the showroom.
That is a very simple reason for this.
Today, most customers can get a clear idea of what they should pay for a vehicle by researching areas such as price, securities trading, credit ratings, etc.
What this actually means is that a client has a very strong bargaining position in the way that the internet never had before. Being able to negotiate online and over the phone puts the client in a much stronger position as they can help over the phone or click on another website.
An automaker and dealer will recognize the power of this, and they should be open to being much more flexible in all areas of price and terms and conditions, and they would be otherwise.
10. Credit score
Most people probably know what a credit score is.
They may not realize that they should be entitled to a free copy of your credit report at least once a year, which offers a breakdown of how your credit score was arrived at. They can also try to get a copy of what your credit score actually is, although there is usually a charge for this.
Understanding how your credit score is made up from the information on your credit report is crucial before turning to any loan or finance company.
Anyone offering you a loan will base it on a credit score determined by information on your credit report.
If that information is incorrect or out of date, it will have a detrimental effect on any loan offer made to you.
For that reason, it is essential to verify the information and make sure it is accurate. If not, the credit bureau has an obligation to correct it, and they usually do it quite well.
11. Now use the calculator
Using an auto loan calculator can give you a realistic idea of what you should be paying for an auto loan. You can only really do this when you enter information that is probably realistic.
This information relates to the price of the vehicle, the amount of the down payment, the trade-in value of the car, any sales tax that may apply, whether local or national, any refunds or offers from a dealer, and the duration or term because of the loan.