What to consider before taking out a car loan
New vs. used car
When buying a car, you’ll need to decide whether to get a new or used vehicle. This can play a role in what financing options are available to you and how much of an auto loan you’ll need to take out.
A new car purchase generally comes with better and more convenient financing options. Used cars, on the other hand, tend to cost less.
Leasing vs. buying a car
Another factor to consider when shopping for a new vehicle is whether you want to buy or lease a car. Instead of owning your car at the end of your auto loan, leasing a car requires that you make monthly loan payments for a predetermined amount of time. Once that time is up, you’ll have to return the car.
Some lenders offer car lease buyouts, which extend the option to purchase your car, typically at the end of your lease. However, you may have the option to buy your car earlier in the lease, too.
Getting preapproved for a car loan
Shopping around and getting preapproved car loans from banks, credit unions and/or online lenders can give you an advantage during the vehicle financing process. Be sure to get preapproved with at least three lenders so you can compare car loan rates, terms and borrowing amounts.
Preapproval requires a hard credit pull — which can bring your credit score down by a few points —- but is a firm offer from a lender. Once you close on your loan, your APR will be similar, if not the same, as your preapproved rate. You can use these offers to negotiate with lenders.
Trading in your car
If you currently own a vehicle, you can trade in your car and put its value toward your car payment. You can determine your car’s worth by using online resources such as Kelley Blue Book (KBB), National Automobile Dealers Association (NADA) or Edmunds.
However, you may make more money if you sell your car privately through a site like Craigslist.
Vehicle rebates
A vehicle rebate is a discount some auto manufacturers offer on new cars. Car rebates can include cash discounts, low auto loan rates and special lease deals. For instance, some auto companies, like Toyota, offer 0% APR car deals.
Car loan fees
As with many forms of credit, you may have to pay some car loan fees when you buy your new vehicle. Some common types of fees include registration and title fees, administrative fees and destination charges (if you have the vehicle shipped). Keep in mind these dealer fees to avoid buying a car since they can unnecessarily add to the total cost of your bill.
Car loan taxes
When you buy a car, you’ll need to pay local and state taxes on your purchase. The most common tax that comes with a car loan is a sales tax. Some states, such as Oregon, don’t charge a sales tax or levy local sales taxes. Other states, such as California, charge sales tax as high as 7.25%.
In some instances, buying a car is tax-deductible. For instance, when you file your taxes, you may be able to deduct the sales tax you paid on your car.
FAQs
To calculate your monthly car loan payment by hand, divide the total loan and interest amount by the loan term (the number of months you have to repay the loan).
How much is the monthly payment on a $35000 car loan for 72 months? ›
If you take out a $35,000 new auto loan for a 72-month term at 4.0% interest, then your monthly payment will be $547.58. Although your monthly payments won't change during the term of your loan, the amount applied to principal versus interest will vary based on the amortization schedule.
What would payments be on a $30,000 car loan? ›
A $30,000 auto loan balance with an average interest rate of 5.0% paid over a 6 year term will have a monthly payment of $483. In total, the loan will cost $34,787 with $4,787 in interest.
How much would a monthly payment be on a $25,000 car loan? ›
Rates and terms are subject to change without notice. Example: A six year fixed-rate loan for a $25,000 new car, with 20% down, requires a $20,000 loan. Based on a simple interest rate of 3.4% and a loan fee of $200, this loan would have 72 monthly payments of $310.54 each and an annual percentage rate (APR) of 3.74%.
Who has the best auto loan rates right now? ›
Compare the Best Auto Loan Lenders
| Company | Used APR Range |
|---|
| AUTOPAY Best for Bad Credit/Low Rates | As low as 5.69% |
| Consumers Credit Union Best Credit Union | As low as 6.84% |
| LendingTree Best for Refinance | As low as 5.99% (Refinance) |
| LendingClub Best for Fair Credit | 4.99%–24.99% (Refinance) |
3 more rowsSep 6, 2024
If you take out a $30,000 loan with an interest rate of 6%, you will pay $1,800 in interest per year. Here's the calculation: Interest = Principal * Interest Rate.
Is it smart to do a 72-month car loan? ›
Because of the high interest rates and risk of going upside down, most experts agree that a 72-month loan isn't an ideal choice. Experts recommend that borrowers take out a shorter loan. And for an optimal interest rate, a loan term fewer than 60 months is a better way to go.
How much is a 20k car payment for 72 months? ›
If you choose a loan term of 72 months, your monthly payment drops to $316, and a 60-month loan term will be $377. A car loan with a low-interest rate could leave you with monthly payments that are higher than you can afford.
How much is a $40,000 car loan payment 84 months? ›
For example, a car buyer considering a $40,000 new car loan with an 84-month term at 9% APR would have a monthly car payment of about $623 and pay $12,369 in interest over the seven-year loan.
What is a good credit score for a 30k car? ›
In general, you'll need at least prime credit, meaning a credit score of 661 or up, to get a loan at a good interest rate. If you have poorer credit, you can still get a loan, but you will probably have to pay more for it or else find a co-signer.
Generally, a good APR for a car loan might look something like this: Excellent Credit (750+): 3% or lower for new cars, 4% or lower for used cars. Good Credit (700-749): 4-5% for new cars, 5-6% for used cars. Fair Credit (650-699): 6-7% for new cars, 7-8% for used cars.
How much money should you have to buy a $30000 car? ›
However, this varies by lender, and the larger the down payment you can make, the better. As a general rule of thumb, it's recommended that you put down at least 20% on a new vehicle, and at least 10% on a used car. Depending on the car's selling price, this could mean shelling out quite a bit of cash.
What credit score do I need for a $25 000 car loan? ›
There isn't one specific score that's required to buy a car because lenders have different standards. However, the vast majority of borrowers have scores of 661 or higher.
What is a good down payment for a $25000 car? ›
A down payment of 20% for a new car or 10% for a used car is ideal, though any size down payment will reduce your total loan cost.
What is a good credit score to buy a car with no down payment? ›
Your credit score is crucial to determine your eligibility for a no down payment car loan. Most lenders require a FICO credit score of at least 680 before you can qualify.
What is the formula to calculate monthly payments on a loan? ›
The formula is: M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1], where M is the monthly payment, P is the loan amount, i is the interest rate (divided by 12) and n is the number of monthly payments.
What is the formula for monthly installment of a loan? ›
EMI Calculation Formula with Example
The lending institution has offered a loan with an annual interest rate of 7.2% for a tenure of 10 years. EMI = Rs 10,00,000 * 0.006 * (1 + 0.006)120 / ((1 + 0.006)120 – 1) = Rs 11,714. Hence, you will be paying the EMI of Rs 11,714 every month for 10 years.
What is the formula for calculating vehicle loan? ›
The EMI due each month on your car loan is ascertained with a mathematical formula: EMI Amount = [P x R x (1+R) ^N]/[(1+R) ^N-1], wherein P in principle, R is the rate of interest, and N is the number of instalments. Make calculations easier with the use of the Car Loan EMI Calculator offered by the Bank of Baroda.
How much would a $5000 loan cost per month? ›
The monthly payment on a $5,000 loan ranges from $68 to $502, depending on the APR and how long the loan lasts. For example, if you take out a $5,000 loan for one year with an APR of 36%, your monthly payment will be $502.
