How to Use the bankrate auto loan calculator
Finding the right vehicle is only half the battle; the other half is securing financing that fits your budget. This bankrate auto loan calculator is designed to provide you with a comprehensive breakdown of your potential monthly payments, total interest costs, and the overall price of your car loan.
By adjusting variables like the interest rate and loan term, you can see exactly how much you can afford before you ever step foot on a dealership lot. This tool helps you avoid "payment shopping" and keeps the focus on the total cost of the vehicle.
- Vehicle Price
- The total purchase price of the car, including any dealer add-ons but before taxes and down payments.
- Down Payment
- The amount of cash you are paying upfront or the value of your trade-in vehicle. A higher down payment reduces your loan principal.
- Interest Rate (APR)
- The annual percentage rate charged by the lender. This is determined by your credit score, the car's age, and market conditions.
- Loan Term
- The duration of the loan in months. Common terms range from 36 to 72 or even 84 months.
The Math Behind Auto Loans
When you use the bankrate auto loan calculator, it utilizes the standard fixed-rate loan formula. This formula calculates the fixed monthly payment required to pay off the principal and interest over the specified term.
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M = Total monthly payment
- P = Principal loan amount (Vehicle Price – Down Payment + Taxes)
- i = Monthly interest rate (Annual Rate divided by 12)
- n = Number of months (Loan Term)
Practical Calculation Example
Let's look at a realistic scenario for a mid-sized SUV purchase using the bankrate auto loan calculator values.
Scenario: You are buying a new car for $40,000. You have a trade-in worth $8,000 and you qualify for a 6% interest rate over a 60-month (5-year) term.
Step-by-step calculation:
- Principal: $40,000 (Price) – $8,000 (Down Payment) = $32,000
- Monthly Rate: 0.06 / 12 = 0.005
- Term: 60 months
- Calculation: $32,000 * [0.005(1.005)^60] / [(1.005)^60 – 1]
- Monthly Payment: $618.65
- Total Interest Paid: ($618.65 * 60) – $32,000 = $5,119.00
Why Interest Rates Matter
Even a small change in your APR can result in thousands of dollars of difference over the life of your loan. For instance, on a $30,000 loan over 60 months, increasing your rate from 4% to 7% increases your monthly payment by approximately $40 and your total interest paid by nearly $2,500. This is why it is crucial to check your credit score and shop around for the best rates using a tool like the bankrate auto loan calculator.
Auto Loan Frequently Asked Questions
What is a good interest rate for an auto loan?
A "good" rate depends heavily on your credit score and whether the car is new or used. Typically, borrowers with credit scores above 750 see the lowest rates, often between 4% and 6%. Used car rates are generally 1-2% higher than new car rates due to the higher risk associated with collateral value.
Should I choose a 60-month or 72-month term?
While a 72-month term will lower your monthly payment, you will pay significantly more in interest over the life of the loan. Additionally, long-term loans increase the risk of becoming "upside down," where you owe more on the car than it is worth (negative equity).
How much down payment should I make?
The standard recommendation is 20% for new cars and 10% for used cars. This helps cover the initial depreciation of the vehicle and ensures you maintain equity in the asset from day one. Using the bankrate auto loan calculator, you can see how increasing your down payment by just $1,000 can lower your monthly obligation.