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# Auto Loan Calculator

## What is an Auto Loan?

An Auto Loan is a type of short-term personal loan typically used to buy a car. Almost identical to other secured types of loans offered by financial institutions, when you take a loan, monthly repayment is made on the principal and the interest. However, two characteristics make it unique - its specific purpose (buying a car) and integrated collateral, the bought car. Yes, the purchased car serves as collateral, meaning if for whatever reason you fail to fulfil your payment obligations, the car could be legally repossessed by the lender.

Interestingly, unlike mortgages, you don't need any real estate collateral to apply for car loans. The loan granting process is simpler and shorter as well. Another difference lies in the payback period length; while mortgages can last up to 30 years, an auto loan typically lasts between 12 to 60 months.

## How to use an Auto Loan Calculator?

To utilise the auto loan calculator, begin by filling the field 'Price of the car'- this should be the final price of the car you want to purchase. Next, provide an annual interest rate. In the simple mode, the value 'loan amount' is auto-filled, matching the value in the field 'price of the car'. If you switch to the advanced mode, you can provide additional information like the money you have, trade-in value, and sales tax to determine precisely the amount of money you need to borrow.

Next, select the payback period (loan term) which can be expressed in years or months but typically, it's a multiple of one year. And voila! The 'monthly payment' field will instantly show your result - this is the amount you will have to pay every month to repay your debt. The field 'total interest paid' at the end of the calculator shows the total cost of your loan over the whole period.

Do you think the monthly installments are too high? Or if you believe you can afford to pay higher installments, feel free to modify some values in the calculator. For instance, elongating the loan term will result in lower monthly payments, and a lower interest rate leads to lower installments. But remember, the interest rate is primarily dependent on the lender's offer.

## Example of Using the Calculator

Consider this scenario for an example. You want to purchase a five-year-old Jeep Wrangler worth \$20,000. You also own an old Chevrolet Silverado worth \$7,000, and you have \$1,500 in your savings account. Suppose the sales tax in your state is 10%, and your car loan interest rate is 4%. You plan to get a three-year loan.

First, estimate the amount of money you will get for your old car, factor in the tax.

\$7,000 - \$7,000 × 10% = \$6,300

Next, calculate how much money you need to borrow. Subtract the money from selling the old car and the cash you can withdraw from your bank account from the final cost of the new car:

\$20,000 – \$6,300 – \$1,500 = \$12,200

Now, use the provided formula to compute your monthly repayments:

(\$12,200) × (4% / 12) / (1 - (1 + (4% / 12)) ^ (-36)) = \$360.19

In this example, \$360.19 is the monthly payment of your loan. If you want to calculate the total cost of your loan, multiply your monthly payment by the number of months you will pay your loan and then subtract the total amount of the loan from that value.

\$360.19 × 36 – \$12,200 = \$766.93

This implies the total cost of your loan is \$766.93. To make your calculations easier and faster, you can use an auto financing calculator.

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