Quick Payment and Interest Calculations for Car Buying
Knowing Your Payments Helps You Negotiate
Are you ready to buy a car? Great, there are many things you must have ready before you go to the dealer. One of the most important is a way to calculate approximate payments.
Calculating payments is based on three factors:
- Your interest rate
- The amount you need to finance
- The length of the term
You should know the answers to those before you go the dealer to negotiate your new car.
For Item 1 – Your Interest Rate:
To understand the approximate interest rate you will be going after depends largely on your credit score and the specials a car manufacturer is offering. To get your credit score, you can use any of the free credit check sites or one that I use is credit karma.
Next, check the dealer sites to see what special financing they are offering. You can also check sites like edmunds.com and cars.com.
Once you have the needed information, you can approximate the rate you may get based on your credit score and the specials being offered. To get the specials, you typically have to be in the 600’s and ideally in the 700’s. If you are not, your rate will be higher than the special.
Also, for leases, they do not use interest. You have to research (MF) money factor. If you want to approximate the percentage rate multiply the lease factor by 6,400.
For Item 2 – Amount to be Financed:
Know the price of the car you want to buy, add in taxes and fees, subtract the amount of money you want to put down. That is it, that number will be the approximate amount you will be financing. People often forget about the taxes and fees which can add $5-10 per month on your payment.
For Item 3 – Length of term you want:
Depending on a lease or purchase, you should know the length you want and how it impacts your payment. Leases are best around 3-years, purchasing depends a lot on the specials if there are no specials that shorter terms will cost you less in the long run.
Put it all together:
One thing I highly recommend is to know various combinations of terms/interest/ and financed amounts. This allows you to easily keep up with the dealers if they offer you different options, change prices, or simply through a lot of information at you.
If you are going to lease, then please read this post here. It is so important to know the different factors in leasing to get the best deal.
One very simple way to know if you deal is on par with a normal purchase is to tally up the total cost over the term (total lease payments + down payment + fees + residual) and compare that to the total cost of the car through standard financing (total payments + fees + down payment). They should be similiar, if one is way higher then something is off.
It is so easy to get a bad deal by leasing, PLEASE do your homework if you plan to lease. A low payment on a lease does not mean a good deal. Check this example here for how a bad deal looks.
Take All Your Homework And Make A Quick Reference to Take to the Dealer
Now that you have the information and have made different calculations, I highly suggest you put those in a cheat sheet and take them to the dealer. This will help you during negotiating and is a bit easier than trying to use some app while numbers are being shouted out to you.
To get you started, I have made some very quick reference tables based on common financing terms and interest rate offers. Take this list and customize it to your needs:
Low APR financing monthly payment per $1,000 financed:
72-months 0% APR – $13.89 per $1,000 financed.
60-months 0% APR – $16.67 per $1,000 financed.
48-months 0% APR – $20.83 per $1,000 financed.
36-months 0% APR – $27.78 per $1,000 financed.
72-months 1.9% APR – $14.71 per $1,000 financed.
60-months 1.9% APR – $17.48 per $1,000 financed.
48-months 1.9% APR – $21.65 per $1,000 financed.
36-months 1.9% APR – $28.60 per $1,000 financed.
72-months 2.9% APR – $15.15 per $1,000 financed.
60-months 2.9% APR – $17.92 per $1,000 financed.
48-months 2.9% APR – $22.09 per $1,000 financed.
36-months 2.9% APR – $29.04 per $1,000 financed.
72-months 3.9% APR – $15.60 per $1,000 financed.
60-months 3.9% APR – $18.37 per $1,000 financed.
48-months 3.9% APR – $22.53 per $1,000 financed.
36-months 3.9% APR – $29.48 per $1,000 financed.
Or you can use this format:
|0%||$ 41.67||$ 27.78||$ 20.83||$ 16.67||$ 13.89|
|1%||$ 42.10||$ 28.21||$ 21.26||$ 17.09||$ 14.32|
|2%||$ 42.54||$ 28.64||$ 21.70||$ 17.53||$ 14.75|
|3%||$ 42.98||$ 29.08||$ 22.13||$ 17.97||$ 15.19|
|4%||$ 43.42||$ 29.52||$ 22.58||$ 18.42||$ 15.65|
|5%||$ 43.87||$ 29.97||$ 23.03||$ 18.87||$ 16.10|
|6%||$ 44.32||$ 30.42||$ 23.49||$ 19.33||$ 16.57|
|7%||$ 44.77||$ 30.88||$ 23.95||$ 19.80||$ 17.05|
|8%||$ 45.23||$ 31.34||$ 24.41||$ 20.28||$ 17.53|
|9%||$ 45.68||$ 31.80||$ 24.89||$ 20.76||$ 18.03|
|10%||$ 46.14||$ 32.27||$ 25.36||$ 21.25||$ 18.53|
|12%||$ 47.07||$ 33.21||$ 26.33||$ 22.24||$ 19.55|
|15%||$ 48.48||$ 34.66||$ 27.83||$ 23.78||$ 21.14|
|20%||$ 50.89||$ 37.16||$ 30.43||$ 26.49||$ 23.95|
Want a handy graphic to print out? Visit this post to get a printable quick reference table.
Total interest paid per $1,000 borrowed:
72-months 3.9% APR – $123.18 per $1,000 financed.
60-months 3.9% APR – $102.29 per $1,000 financed.
48-months 3.9% APR – $81.65 per $1,000 financed.
36-months 3.9% APR – $61.26 per $1,000 financed.
72-months 2.9% APR – $90.73 per $1,000 financed.
60-months 2.9% APR – $75.46 per $1,000 financed.
48-months 2.9% APR – $60.33 per $1,000 financed.
36-months 2.9% APR – $45.34 per $1,000 financed.
72-months 1.9% APR – $58.87 per $1,000 financed.
60-months 1.9% APR – $49.04 per $1,000 financed.
48-months 1.9% APR – $39.27 per $1,000 financed.
36-months 1.9% APR – $29.56 per $1,000 financed.
Here is a sample of how you would use it:
If your car costs $20,000 and you received 3.9% APR for 72-months you will have paid $2,463.60 in interest ($123.18 * 20).
Another Quick note on leases
Now that you know the total interest paid on the special financing terms if you decide to lease on the spot without doing your homework at least do this quick check before you sign any papers.
Multiply your total payments.
Add your down payment. (Should be zero or very small)
Add your trade-in allowance.
Add any rebates and incentives.
Add in the residual value of the car. (Should be as high as possible)
This is your total price of the car. Does it make sense? Is it high compared to traditional financing? If you are doing a 36-month lease, look at what your total cost of the car would be using traditional financing using the charts above. For a car that costs $20,000 financed at 3.9% for 36 months you will pay a total of $21,225.26 (before taxes and fees). If you do your calculation above for your lease and it turns out to be $25,550, you know you have a terrible deal.
Word of warning here. Just because the numbers match the good financing does not mean you have a good deal. If you are at the dealer and reading this and you don’t know why then take the information down and tell the dealer you will call them with your acceptance within 24 hours. Go home and walk through the calculations on this site and determine if your lease meets the proper factors for being a good deal.
If you are arithmetically challenged, post the information in the discussion board or on any other car buying discussion board and wait for responses.
Never rush a lease unless you are already familiar with each factor before you go into the dealer.