Calculate your vehicle payments before wandering through the new or used car lot. This will provide the information you need to decide how much car you can afford. Several variables affect the payment, such as how and where you choose to finance the loan. Shop around to find the best deal. Check the interest rates for different lengths of repayment. It might be significantly cheaper to take a three-year loan, with a lower interest rate, rather than a four or five year loan. The monthly payments may be only slightly higher due to the lower interest rate.
Determine the amount of the loan. You may need to include additional items above the cost of the vehicle, such as dealer prep, transportation, taxes and fees, loan origination charges and optional upgrades.
Request an amortization table or use an Internet amortization calculator such as the one on the Bankrate.com website (see Resources). An amortization table calculates how much interest you will pay with daily compounding of the loan amount.
Add the principal and interest together to obtain the true cost of the vehicle loan.
Divide the total by the number of monthly payments. For example, if the amount is $20,000 over 4 years then divide $20,000 by 48 months (20000 / 48 = 416.67).
Add any additional amounts to be included in the monthly payments, such as car insurance, life and disability insurance or payment processing fees. This new total will be the amount of your vehicle payments.
