If you are in the market for a new or used car, of course you will want to know whether or not you can afford to make the monthly repayments if you need to get financing. Although each lender will most likely offer different interest rates on a loan, you can probably assume that the rates you are offered will be largely based on your credit score and your income. However, the loan repayment amount will also be affected by the size of your deposit or vehicle exchange value because this will lower the selling price by just that much.
How to Use a Car Finance Calculator
The first thing you should probably know is where to find a Car Finance Calculator. They are readily available online and are actually quite easy to use. Although the repayment amount may vary from lender to lender based on the interest rate they are willing to offer, generally speaking interest rates are based on your credit rating and most lenders have fairly competitive rates.
You will be asked a series of questions on the screen and you just need to be as accurate as possible to get the closest estimation of what your monthly repayments will be. For example, most of the time an online Car Finance Calculator will ask what your credit rating is from a drop down menu. You are given the choices excellent, good, fair and poor. If you don’t know your credit rating, it would be a good idea to get a copy of your credit score before you begin working with the calculator. Even so, most of us know what category we will fall into based on firsthand knowledge of how we pay our bills.
Questions Asked on a Typical Car Finance Calculator
As mentioned, you will be asked for your credit rating. Beyond that, you will be given a choice of how many years you intend to finance for. Most calculators give you options from one to five years, again on a drop down list. The next question may be how much deposit you are making towards the selling price or how much your current vehicle will yield in trade-in/exchange value. Of course you will need to know the price of the vehicle and that may be all you are asked.
Based on how you answered your credit rating, the interest rates will change and subsequently the amount of your repayments will change as well. For example, a vehicle selling for £20,000 to a person with excellent credit with a £2,000 deposit/exchange on a 5 year (60 month) repayment schedule will have an estimated APR of 9% with monthly repayments at about £371. On the other hand, the same selling price, deposit and term loan for a person with fair credit would have monthly repayments of £481 and an APR of 22.8%. This is why knowing your credit rating is so important. That £110 difference monthly is huge.
Anyone considering buying a vehicle is advised to use a freely available online Car Finance Calculator before actually talking business with a car dealer. As well, once you know what you are looking at in terms of interest rates, you can shop around for better deals from other lenders. Since a Car Finance Calculator is easy to use and free online, there is no reason you can’t use one to help you get the best deal possible on a new car.