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Car Payment Calculator

Guide to Car Payment Calculator
When purchasing a new car, it is important that you understand all of the financial consequences of car ownership and the ways to finance your purchase.  A car payment calculator can be used to help you understand how much leasing a car will cost you if you are taking out a lease on the vehicle. 

Most people cannot afford to pay the upfront cost of a new car, so it is important that you understand the basics of auto leases before looking for that new vehicle.  Car payment calculators are just one of the steps needed to be taken before you are ready to make an offer on a vehicle.  

Following these steps in order properly use a car payment calculator while searching, finding, and leasing a vehicle while financing through a lender.

I. First, you must prepare your budget.  You should be aware of all of the costs involved in leasing a car.  Consider the following costs when coming up with your car lease budget:

- Basic cost of the car

- Taxes, fees, and licensing (all of these amounts will vary by state.  Check further with your state to determine exactly how much this will cost you)

- Insurance Costs

- Car lease payments.  Depending on your lease terms, you may be paying more to the lender than the car is worth.  Car lease rates vary by lender, they type of car, and your credit history.  

Check with multiple lenders to further explore what the lease rates are in your area. 
- Fuel and maintenance costs.  These amounts will vary by the type of car, the car's age, and sometimes just luck, as you never know when a car may have a problem that requires expensive mechanical work.

Once you have established your budget, you are ready to start using a car payment calculator to determine exactly how much your lease will cost and which cars are really in your price range.

II. Another important factor is your credit score.  While car payment calculators can give you a general idea of what your rates and payments will be, your credit score may ultimately determine what rates a lender is willing to give you, or whether they will provide the lease at all.

- Check with online credit score reports.  Many free options are available and many other options require payments but provide a much more in depth look at your credit score.

- Always first check with the major credit reporting agencies, who will provide you with your scores. 

- After getting your score, search for information on whether your credit score is considered a good credit score or a bad credit score.  You may need credit counseling to raise your score in order to qualify for an auto loan.   

III. Many car payment calculators are available, however you want to use one that supplies as much information as possible to give you the best idea of the financial burden your lease will cost you.  Enter the data as it is asked for on the car payment screen.  You will need to include the following:
- Principal Amount
- Interest Rate
- Payment Period
- Term/Length of Loan
- Payment Amount
- First Payment Date

Once you have entered each value, select the calculate button.  You can reset your entered information at any time by pressing the reset button, or you can change each individual box at any point during the process. Once you finalize all of the numbers and press the calculate button, all available loan information will become available to you.  You may print this information, save it to your computer, or go back and change the values in order to see the effects they have on your loan information.  

4. In order to best understand the results of the auto loan calculator, you must understand what each term means.  The following are a brief description of each value that need to be entered into the auto loan calculator. 

   1. Purchase Price – The purchase price is the total sale amount of the car you are financing.  If you are unsure of the actual final vehicle price, enter your best estimate into the car payment calculator. 
   2. Down Payment – The down payment is the upfront payment on the car you are leasing.  Not all auto leases require a down payment, however most auto financing companies will only give an auto lease if a certain percentage of the total vehicle price is paid upfront. 
   3. Sales Tax – If the car to be leased is subject to sales tax in your state, you should enter the sales tax that will be added to your final vehicle price.  If you are unsure, check online to determine if your state requires an upfront sales tax.  Be cautious, as some states do not require an upfront sales tax, but instead charge a yearly property tax on vehicle ownership.  Most states require a sales tax for vehicle purchases, which often range in between 4% to 8%, but always check to find your state's rate. 
   4. Yearly Interest Rate – The yearly interest rate is the percentage of the total auto lease that will be turned into interest that must be paid to the lender.  The yearly interest rate can also be referred to as the APR (Annual Percent Rate), APY (Annual Percent Yield), or just as the interest rate.  If you are using car payment calculators to determine the yearly interest rate, leave this field blank and the calculator will tell you what the rate will be considering the other amounts entered in the other boxes.  
   5. Payment Period – This will determine how often you will make lease payments on your car.  You can choose between paying monthly (30 day payments), annually (one payment every year), quarterly (payment every 3 months), semi-monthly (payment every 15 days), bi-weekly (payment every 14 days), and weekly (one payment per week).  You may also select a custom payment period on the car payment calculator.  

- Typically, most financing companies require a monthly payment for car leases.  However, you may occasionally find bi-monthly lease plans or quarterly lease plans, depending on your credit history and the value of the car. 

- The payment period must be used along with the proper length of lease.  Typically, the length of the lease will highly depend on the terms provided by the dealership and financing company.  Car leases are typically between 2 and 3 years in length.  They are not usually longer as most cars depreciate greatly over time.    
   6. Length of Lease (Term) – The length of the auto lease is the overall length of time you will make lease payments and have possession of the car.  You can enter any amount of time your lease will last.  If you are using the car payment calculator to determine the length of a lease, leave this field blank and the car payment calculator will tell you how long it will take to pay your lease considering the total lease amount, lease rates, and payment terms.   
   7. Payment Amount – The payment amount is how much each payment will be on your auto lease.  Typically, this is what most people want to find out when using car payment calculators, as this is the payment you will be responsible every payment period.  Leave this area blank in order for the car payment calculator to tell you what your payment amounts will be. Note that you must enter a length of lease, lease terms, and amount in order to get your car payment amount.  
   8.  First Payment Date – The first payment date is when you will first start making payments.  The car payment calculator does not require this information in order to perform its basic functions, however entering a first payment date will provide you with a more accurate description of when your overall car payments will end and the lease will be completed.

Notes

1. While car payment calculators can usually give you fairly accurate auto lease information, you should not rely on the information obtained through them.  Instead, they should only serve as general estimate to help you budget and determine what cars you can and cannot afford.  

  2. Leasing a new vehicle works slightly different than other forms of loans.  Auto leasing terms often involve limits on how many miles you can put on the car during the year.  Auto leases also do not transfer the car to your ownership, instead the leasing company is the true owner.  You must also return a leased vehicle at the end of the term, however you may have a purchasing option.  

3. Beware of unconventional lease terms that auto financiers may offer to lure you in.  These terms can often not put into the car payment calculator so you must manually determine how these terms will affect your overall lease. 

- Many auto financiers offer no payments for a certain period of time, usually for the first month or two.  While these offers seem tempting, as you will be driving your vehicle without a monthly payment for a short period, the lease amounts will catch up with you and are often less favorable than standard lease. 

- An incredibly low lease rate is only one factor to use in your car payment calculator.  While a low rate may seem like you are getting the best deal possible, if the lease requires a large down payment, you may actually spend more overall than with higher lease payments and a smaller down payment. 

4. Always be willing to haggle.  Often times, an auto financing company will not offer you the best deal they are willing to give.  Instead, you should try to bring the total amount down. Use the car payment calculator to see what lease rates and terms will best suit you.  Use this information to try to bring down lease rates and try to extend the term of your lease as long as possible.

5. Depreciation is a major factor that you must calculate into your budget.  Cars can depreciate in value very quickly, so be cautious that at the end of the lease you are not paying more for the car than it is worth.  Instead, look at the average depreciation rate of similar makes and models of the car you are looking at.  

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