Figure Out Your Car Payments
Can you afford the monthly payments for a new vehicle?
This free car payment affordability calculator is designed to help you make sure you can really afford a vehicle before you buy. Based on purchase price, down payment, interest rate and term we estimate your monthly payments so you can finance a vehicle in a way that works for your budget. We also offer some tips on improving affordability below.
Step 1: Calculate your monthly payments
Step 2: Compare to your budget
Your goal as you shop for a new vehicle is to find a financing option that fits your budget comfortably. But keep in mind that your car payment shouldn’t take up every free dollar in your budget. A new car may come with added expenses for registration as well as different insurance costs.
You also want to leave some cash flow in your budget to cover everyday costs that come up. Being budgeted down to the penny is a fast way to wind up with extra credit card debt. So your car payment should fit in your budget with plenty of room leftover. For average American households, total transportation costs usually make up roughly 17% of their budget. That includes loan payments, insurance, maintenance, parking and tolls.
3 Tips for Making Car Payments More Affordable
If you can’t find an affordable monthly payment on the current budget that you have, these tips can help you achieve a more affordable payment. Play around with the numbers, adjusting each of these three factors to see how it affects your payment amount. If you still can’t afford the payment, then you may simply be shopping for too much vehicle and you need to scale back.
Option 1: Extend the term
One popular way of making car payments more affordable is to extend the term of the loan – i.e. the number of months you have to pay the loan off. In the past, most people went for auto loan financing between 36 and 60 payments. However, these days you can get 72 and 84 month car loans and the longer you make the term, the lower the payments are on the same loan amount at the same interest rate.
So the monthly payments on a $20,000 with a $2,000 down payment at 6% APR…
- 36-month term: $547.59
- 60-month term: $347.99
- 84-month term: $262.95
Just be careful with total interest charges!
Each month that you add to the term of a loan gives one more month for interest charges to be applied. Increasing term increases the total cost of your vehicle. So with the 36-month loan above the total interest charges are just over $1,900; at 60 months total interest charges are just under $3,200; at 84 months those charges jump up to over $4,500.
Option 2: Increase your down payment size
The more you can put down, the less money you usually have to pay over the life of the loan. So while many car dealerships advertise zero or no money down offers, those are often not the best option for your budget because they can increase your monthly payment amount and total cost. Even though these offers may pull you into the dealership, it’s usually better for your bottom line to put as much down as possible.
Let’s say you want that same $20,000 loan at 6% APR and you want to keep the loan term to 60 months to avoid driving up total interest charges…
- If you put $3,000 down instead of $2,000 your monthly payments decrease to $328.66
- If you put down $5,000, the payments drop all the way to $289.99
See what you can do to generate a larger down payment. If you can afford to do so, this may include waiting a few months to build up your savings, in which case you also have time to do Option 3, too.
Option 3: Improve your credit for a better rate
Credit score plays a notable role in how much you end up paying for financing because it directly affects the interest rate you qualify for on your new loan. For example, today’s current auto loan rates for excellent credit are just over 4% APR.
So let’s see what happens to the $20,000 loan with $2,000 down and a 60-month term with different rates:
- With just 1% difference at 5% APR, the payments drop to $339.68
- At 4% APR that decreases to $331.50