If you need a car loan, ask yourself, “How much car can I afford?” There are multiple ways to calculate an affordable car loan.
A common approach is to choose a loan amount first, then calculate monthly car
payments. Or, if you have a paycheck stub and know or can estimate
your credit rating, you can pre-determine
what you can afford, and then calculate a
loan amount to fit your budget.
Your credit rating or credit score is a measurement of risk. Low credit scores mean higher risk to lenders, which translates into higher loan rates for you. Knowing your credit rating can help you negotiate your best loan rate.
When it comes to your credit score, nothing is written in stone. You can improve your credit score if you know of a mistake on your credit report. One way is to work with the bureau agencies directly via a letter-writing campaign (however, this can be time consuming and complicated if the report also involves identity theft, late payments, job loss, reporting mistakes or a divorce). Consider the value of your credit rating and the amount you will save in lower interest costs before making a decision.
This is where it pays to think ahead before you get your loan. Long-term loans have lower payments (good from a cash flow perspective) but cost more in interest (bad, if over time, the car becomes worth less than you owe and you need to sell it). Financial experts say 12-15% of your monthly take-home pay is appropriate for a car loan payment. Use this number to gauge the highest sticker price you will pay for a car. Try working the numbers for a loan amount you can afford, and will pay off in three or four years.
Interest Rate Information
You can enter any rate here or use interest rates based on your Credit Score.
Monthly Income Information
This is your monthly after-tax take home pay. You can find this information on your pay stub if you're not sure.
Desired Loan Amount Information
This is the amount you'd like to finance. Most likely, the price of the car you're interested in.
Monthly Payment Information
This is the amount you can afford to pay per month after all other payments such as mortgage/rent, credit card, etc., are paid first.