Car Loan Calculator: Get the Right Terms for Your Loan


Buying a car can be an exciting experience, but it’s important to understand the terms of your loan to make an informed decision. In this article, we will guide you through the key factors to consider when getting a car loan.

Down Payment

Putting more money down on your car loan can make financing a vehicle more manageable for your budget. By reducing the amount you borrow, both the loan amount and the monthly payments will be lower.

Tip: Be cautious of “zero down payment” offers! While they may seem appealing because you don’t have to pay any cash upfront, the total cost of the vehicle tends to be higher with these types of offers. This is because you are financing the entire amount. Always compare the total cost of such offers with a traditional car loan from a bank or credit union.

Interest Rate

The interest rate on a car loan is typically determined based on your credit score. A higher credit score means you may qualify for a lower rate. This will reduce the overall cost of financing a car as well as the monthly payments. It’s advisable to check your credit score and work on improving it before applying for a new car loan.

You can use our credit score loan calculator to see how much more buying a vehicle would cost with poor credit.

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Loan Term

Car loans can range from 12 months to 84 months (7 years). A longer loan term will lower your monthly payments but increase your total costs. On the other hand, a shorter term will increase the monthly payment but reduce the overall costs. In general, aim for the shortest term you can afford to make the payments.

Tips for Buying a Car

Compare Loans Without Affecting Your Credit Score

Normally, multiple credit inquiries within a short period can harm your credit score. This is why you wouldn’t want to apply for multiple credit cards at once. However, when it comes to car loans (similar to mortgages), credit agencies make an exception, allowing you to apply for multiple loans to compare the best offer.

All credit inquiries for car loans within a short period (usually 14 days) are counted as a single inquiry. This gives you the freedom to pre-qualify for a car loan and compare it with the dealership offers you may receive.

TILA Disclosure: Your Best Friend

The Truth-in-Lending Act (TILA) requires lenders to provide a disclosure summary before you sign a loan agreement. This summary will include:

  1. The total amount you will finance with the loan (loan amount)
  2. The APR (annual percentage rate)
  3. The total financing costs – what you will pay for borrowing the money
  4. Your monthly payment amount
  5. Number of payments
  6. Penalties that may apply, such as prepayment or late fees

Carefully review this disclosure in any loan offer before signing the loan agreement.

Get Pre-Approved by Your Preferred Lender First

Instead of starting your car shopping journey right away, call your bank or credit union and get pre-approved for a car loan. Your financial institution will be able to help you understand the maximum loan amount you can qualify for. This will narrow down your search before you begin shopping.

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Compare Any Dealer Offer with Your Pre-Approval

Another benefit of getting pre-approved is that you will have a loan in hand to compare with dealership offers. Make sure to compare the TILA disclosures for the loans side by side. Offers like “zero down payment” or “interest-free for 12 months” may sound appealing but often end up costing more in the long run.

Maximize Your Credit Score before Applying

It’s always a good idea to review your credit report six months before applying for a car loan. This will give you time to ensure there are no negative items that could potentially harm your score.

The higher your credit score, the easier it will be to qualify for a good loan with favorable terms. Taking steps such as repairing your credit and paying off credit card debt can help ensure you get the best possible loan.

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