Four Ways a Car Payment Calculator Can Help Save Money

Richard Barrington
LoanBiz Columnist

Article Rating , 4 out of 5 based on 1 votes

Using a car payment calculator is fairly straightforward--users pretty much just have to fill in a few blanks, and the computer does all the hard work. But what should prospective car loan borrowers be looking for when they use a car payment calculator? The following are four types of comparisons that can help car loan borrowers save money.

  1. Length of loan comparisons. Two years or five years? Or even seven? Car loans are offered in a variety of term lengths. The trade-off is simple: a longer loan means lower monthly car payments, but it also means paying more in interest over the life of the loan. A car payment calculator can help a borrower see how much lower each car payment would be with a longer-term loan. The first priority should be to make sure the monthly car payment is comfortably within the borrower's budget. Thus, a borrower should calculate progressively longer loan terms until a manageable car payment is found. Once that level is found though, the borrower should not lengthen the term any further, because this would unnecessarily add to interest expense.
  2. Cost vs. insurance savings comparison. Adding certain safety options, such as extra air bags or anti-theft devices, will cost more, but can also result in lower insurance premiums. A prospective borrower should get insurance quotes with and without these options, and then use a car payment calculator to see how the difference in monthly car payments would compare to the difference in insurance payments.
  3. Down payment comparisons. It may seem like a wash: a bigger down payment will result in a smaller car loan and thus lower monthly payments, but it will cost more up front. However, there is more to the cost of a larger car loan than just the principal--that larger loan will also accrue more interest. In fact, even the interest rate might be affected by the size of the down payment, since lenders feel more secure with larger down payments. A car payment calculator can help a borrower might see how much cheaper a larger down payment could actually make the purchase, once interest savings over the life of the loan are factored in.
  4. Lender comparisons. Naturally, a borrower should shop around to get the best interest rate, but sometimes the comparisons aren't quite that simple. One lender might have a lower interest rate but higher fees. A car payment calculator can translate all the differences to dollars and cents for a direct comparison.

About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.

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