Car Loan Interest Calculator

The biggest difference between taking out a car loan and buying your car outright with money that you’ve saved up is that with a car loan, you’ll need to pay interest on the money the lender gives to purchase the vehicle.

Interest is an amount charged by the lender to cover the cost of lending you money. It means that you’ll pay a bit more than the purchase price of the car in total.

The advantage to you is that you don’t need to have the full purchase price up front. Instead you can make regular monthly payments toward the loan. Once the loan term ends, the car is yours, and there’s no more to pay.

How to Use a Car Loan Interest Calculator

If you want to calculate your car loan interest, one of the easiest calculators to use is here. This car loan calculator will tell you exactly the dollar figure that you will pay in interest for a particular car loan.

It also breaks down your monthly payments for the entire loan term, so you can see how much of each repayment pays of the principle of the loan (the amount that you borrow) and how much goes towards the interest (cost of borrowing the principal amount).

You can use this car loan calculator to work out the effect of making a balloon payment at the end of the loan term too.

Let’s have a look at an example so you can see exactly how it works.

Calculating Your Car Loan Interest:

Aleksandra wants to buy a 2012 model Suburu Outback. She’s found a white 2012 model at a dealer that she likes with just under 100, 000km on the odometer. It’s priced at $22, 990, excluding stamp duty and government charges.

Save a deposit

She’s saved up $5000, but wants to put $2000 towards the deposit and keep some money in the bank for insurance and registration down the track.

Aleksandra is currently working as a Fundraising Coordinator for a non-profit organisation with headquarters in Sydney, and she plans to stay in her current position for a few more years before looking for work overseas - she’s originally from Poland and keen to explore opportunities there in the future.

How long will you keep the car?

She knows she’ll need the car for 3 years, and after that she wants to be able to sell it if she does decide to move.

To work out if she can afford to buy this particular car, Aleksandra decides to use the car loan interest calculator to see what her monthly repayments are and how much interest she’d be paying over the 3 years.

She enters in the following information:

  • Vehicle Value: $22, 990
  • Deposit: $2000
  • Interest Rate: 9%
  • Loan Term: 36 months

Here’s what she finds out:

Her monthly payments will be $667.48. To borrow at total amount of $20, 990, she’ll pay a total of $3, 039.15 in interest. This means that to buy the car using a car loan, Aleksandra will spend a total of $26, 029.15 over the 3 year loan term.

Based on this information, Aleksandra decides she can afford the car loan, at starts an application for pre-approval.

If you look closely at the breakdown of the monthly repayments, you’ll see that the amount of interest you pay with each repayment decreases, and you’re paying more off the principle borrow amount.

Longer Loan Term -Lower repayments, but what does it mean for your total spend?

When taking out a car loan, it’s easy to focus on the monthly repayments when you’re deciding whether you can afford it.

By taking the loan amount over a longer loan term, you’ll reduce your monthly payments, which at first glance, makes the car loan look more affordable.

However, it is important that you consider the total cost of borrowing the money over a longer term by calculating the car loan interest and comparing it to the shorter loan term.

That's where you need a car loan calculator to determine how much you can afford to borrow by looking at the repayments over the loan term that you want.

Compare the interest costs of a shorter car loan term

Using our example above, if Aleksandra decided to get a loan term of 6 years, rather than 3 years, she would have monthly car loan payments of $378.36, which at first glance is much more affordable than the $667.48 she’ll be paying if she chooses the shorter loan term of 3 years.

However the total car loan interest over the 6 year car loan comes to $6,251.63 - more than twice what it would cost to borrow the same amount over just 3 years.

You can see straight away that if you want to get out of debt sooner and get a better price on your car, you’ll want to take on a higher monthly payment.

How to Apply For A Car Loan

Now that you’ve calculated your car loan interest, you know what you’ll be up for if you decide to borrow the money to purchase your next car.

The next step is to apply for a car loan pre-approval. Once you have a pre-approved car loan, you can shop for the car that you’re looking for with confidence, knowing exactly what you can spend and what the total cost will be.

You can apply online here to get assistance from an expert car loan broker. They’ll be able to give you more information about the car loans that you are eligible for and the car loan interest rates that will apply.

In no time at all you’ll be on the way to getting a car loan you can really afford!

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