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Simple Interest Calculator
Accurately estimate simple interest with our simple interest calculator. It helps you understand your loans and investments better.
When you are about to purchase a car, it is a big financial decision as cars are generally big ticket items that might require you to opt for a loan to finance the car purchase. You can use our Auto Loan Calculator to easily compare and contrast loans, their interest rates, and payment terms and understand the nuances of auto loans and help you save some money and gain clarity on the entire process.
Loans are financial transactions in which one party who has money, called a lender, lends money to another party who needs money, called the borrower, and charges an interest rate as compensation.
Usually, the terms of the loan will include the principal amount (initial sum borrowed), the interest rate (cost of borrowing money), and the repayment period (the repayment duration for the loan). It might also include any fees or additional charges levied for the loan.
The Auto Loan Calculator will help you compare auto loans on different parameters, based on which you can make a well-informed decision on which one to choose.
Using the auto loan calculator, you can calculate the periodic payments that you need to make, the total interest paid, and the total amount, which is the sum of the principal and interest.
The variables in the auto loan calculator are:
Principal (P) The initial amount borrowed for the loan.
Annual Interest Rate (R) The interest rate advertised by the bank while borrowing the Principal.
Loan Tenure (N) (Years or Months) The period for which you borrow the principal.
Compounding Frequency The number of times per year the interest is accumulated, could be yearly, half-yearly, quarterly, monthly, weekly, or daily.
Payback Frequency The frequency at which you have to make the loan payments.
Payment Amount The fixed amount of money to pay every period to repay the loan.
Total Interest Paid The total interest you pay back to the lender throughout the loan.
Total Payment (Principal + Interest) The total amount paid back to the lender.
An Auto loan is a financial arrangement designed to help people purchase a vehicle. The borrower is obligated to repay the lender the original amount borrowed, known as the principal, along with any additional charges, such as interest or financing fees, at a later agreed-upon date.
Basically, a loan involves the temporary transfer of funds from the lender to the borrower, expecting the borrower to reimburse the lender in the future. The loan tenures for auto loans range from two to seven years.
Before exchanging money, the borrower and lender agree on the loan’s terms. Sometimes, the lender may ask the borrower to provide collateral, which is a valuable asset that the borrower possesses given to the lender for security, and in an Auto Loan, the vehicle itself serves as the collateral. If you fail to make the loan payments, the lender can repossess the car to recover the amount owed.
A loan will usually have the following primary features.
Principal: This is the initial sum that you borrowed from the lender. It could be $20,000 for the car you are buying.
Interest Rate: The interest rate is the money the lender charges to borrow the sum. In other words, it is the cost of borrowing the money. The interest rate a lender offers will depend on the borrower’s creditworthiness.
Loan Term: The amount of time the borrower has to repay the loan. Depending on the specific loan type, this period can vary, ranging from a few weeks to several years.
Interest Payments: Borrowers typically make regular repayments to the lender, usually every month. These monthly payments are often a fixed amount.
Applying for a loan is the first step. You can apply for an auto loan through a bank, credit union, online lender, or even through the dealership from which you are buying the car. The lender will evaluate your income, credit history, credit scores, and other factors to determine your eligibility and interest rate.
If the lender approves the loan, the lender will provide a loan offer document detailing the loan amount, interest rate, and repayment terms.
The lender sends the funds directly to the seller or dealership, with which you can purchase your brand-new car.
You make monthly payments over the loan tenure. Each payment covers both the principal (the loan amount) and interest. During the initial days of the loan, the monthly payments will primarily cover the interest component.
As time passes, you pay down more of the principal component, and toward the end of the loan tenure, each payment will cover more of the principal.
Once you’ve made all payments, the loan is fully repaid, and you own the vehicle outright.
You can calculate the periodic payment amount by using the Reducing Balance Method.
Using the reducing balance method, we can calculate periodic payments by,
Where
P → Principal It is the amount that you borrow from the bank
r → Periodic Interest Rate
This rate is the periodic interest rate, and if the period is monthly, then you can get the rate by dividing the advertised Annual Rate or Nominal Rate by 12
n → Total number of periodic payments
This is the number of periods of loan tenure
A loan amortization schedule outlines the repayment plan of a loan over its entire term. It provides a breakdown of each payment, showing how much of the payment goes toward the principal (the original amount borrowed) and how much goes toward the interest (the cost of borrowing). This schedule is useful for loans where borrowers make regular fixed payments over a set period.
Your interest rate will be influenced by your credit score, your income, loan tenure, the car you’re purchasing, and the lending institution and its policies. A higher credit score generally will result in lower interest rates.
Yes, negotiating with lenders can lower interest rates. Do research on different lenders to find the best rates. You could also compare the loans with our selection of loan calculators and find the best loan for you and your needs.
Both options have pros and cons. Dealerships may offer convenience rates and may have additional charges, but banks might provide more competitive rates. You should compare and contrast offers before making a decision.
A down payment is an upfront payment made to the dealer or seller. It reduces the loan amount, which in turn lowers your monthly payments and the total interest paid over the loan term.
Yes, many auto loans allow for early repayment. Paying off your loan early can save you money on interest, but it could hurt your credit score, and there could also be some additional charges/fees like a prepayment penalty. You could consider not paying off your loan early to increase your credit score.
If you don’t make payments on your loan, you will eventually default, and the lender can repossess your vehicle. It is better to follow these steps if you realize you don’t have enough money for the monthly payment.
Given you procure a loan of $100,000 at 6% APY, compounded Annually and the loan tenure is for 10 years.
What monthly payment amount do you need to make to repay the loan within the loan tenure?
To get the monthly payment amount, you need to use the following formula
First, you need to get the periodic interest rate, that is the monthly rate as the payback frequency is monthly. Since the interest is compounded annually, the effective interest rate for 1 year is 6% itself and the nominal interest rate per month is given by the following formula.
The number of periods is 12M * 10Y = 120 periods. Now, we can calculate the PMT as
The monthly payment required to pay back the loan amount is $1,102.24.
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