Auto Financing: Your Car Loan Calculator With Bad Credit 

Carmakers have had sales drop by as much as 55% this year as a result of the coronavirus pandemic.

It could be a great time to buy a car because used and new dealerships are eager to move inventory. You may have taken a hit in income, too. That’s why you need to use a car loan calculator to see how much car you can really afford.

Don’t let money stand in your way of getting a new car. Read on to find out how you can calculate auto loans.

How to Calculate Auto Loans

There are a number of different variables that you need to know when calculating your car loan. The first is the amount of the loan. You need to know the interest rate of the loan, and the number of monthly installment payments.

You may not have that information at the moment because you haven’t started to shop for auto loans yet. If that’s the case, you’ll need more information to estimate the variables.

You can control the amount of the loan and play with different scenarios. For example, if you are deciding between 2-3 car models, you can plug in those prices into the car loan calculator.

You also want to make sure that you subtract your trade-in amount and down payment from the car price. That will be the amount that you need to borrow.  

You can also control the number of monthly payments that you have to make. Lenders will usually offer anywhere from 36 months (3 years) – 84 months (7 years).

About a third of car loans are 60 months or more. Consumers gravitate towards these loans because they make your monthly payment lower.

You’re spreading out the loan over a longer period of time. You’re also going to pay more in interest. Before you buy your car, think about how long to plan to own the car. Many car owners only keep a car for a few years.

You’d be stuck with a car loan payment long after you got rid of the car.

Estimating Interest Rates

The one variable that you won’t be able to know until you prequalify for a car loan is the interest rate. The interest rate is largely determined by your credit score.

If you have a high credit score, you’ll get a lower interest rate. If you have bad credit, you should expect to pay more in interest.

That shouldn’t deter you from getting a car loan. There are plenty of lenders that work with people with bad credit. See more here to learn about these opportunities.

You should expect to pay somewhere between 5%-7% in interest if you have good credit. If you have bad credit, you could pay anywhere between 10% – 15% in interest. Some lenders can charge you more depending on your credit history.

Calculating Auto Loan Payments

There are a number of ways to calculate your car loan. You can use any one of the hundreds of online car loan calculators. These will give you the information that you need.

You can plug in different numbers to see what your monthly payment will be assuming different terms and interest rates. This will allow you to come up with a monthly payment that fits your budget.

The alternative is to learn the calculation formula yourself.

Start by taking the interest rate and divide by 12, which will be your monthly interest rate. You’ll then divide that by 100 to get a percentage. You’ll then add 1 to that number.

Here’s where it gets complicated. You’ll then take the number of monthly payments and raise the result you have so far by the power. So if your result so far is 1.0000553, and you have 48 payments, you’ll raise that to the 48th power.

You’ll then subtract 1 from that number. You’ll divide this number by the monthly interest rate from the first step.

Add your monthly interest rate again and then multiply this number by your auto loan. This is your monthly car payment.

You can create a formula in a spreadsheet that will let you plug in the variables.

What Car Loan Calculators Don’t Include

Remember that this is an estimate. It doesn’t include registration or other fees from the lender and the car dealership.

As you’re shopping for cars, as the dealership and the lender what the additional fees are. There are usually loan origination fees and some administration costs.  

Dealers and lenders are known to throw in miscellaneous fees, hoping that you won’t notice. You could be paying much more that you bargained for.

How to Get a Better Interest Rate

The variable that has the biggest impact on your loan is the interest rate. Bad credit could make your loan cost more, even with a good lender.

There are a few things you can do to lower the amount that you pay in interest by improving your credit score.

Pull your credit report and see if there are any errors. A lender or credit card company may have mistakenly said you were late on a payment. Someone could have applied for a loan in your name in an ID theft attempt.

If you do spot any mistakes, you need to get those corrected as soon as you can.

There isn’t too much that you can do to remove late payments from your score. It takes time and making payments on time for years to get those off of your score.

The other thing you can do is lower your credit utilization rate. Pay down your credit cards as much as you can before shopping for a loan. 

Using a Car Loan Calculator

If it’s time to buy a car, you need to estimate what your car loan payment will be. You also need to know what you can afford. A car loan calculator is a useful tool to determine your car loan payment. 

You can use an online calculator or do the calculations manually. You just need to know the loan amount, interest rate, and the length of the loan. 

Be sure to visit the Auto section of this site to get more car tips.