How do Payment Calculators Actually Work?

By: Jessica George   |   26 Apr 2018
Calculator and pen on a table calculating interest car loan and payments

There are a few different things that can be referred to as a credit or payment calculator, and I’m talking about those that calculate your monthly payments when you’re purchasing a new vehicle. In this post, I’ll break down how credit calculators work, and how to get the best deal out there no matter what your credit score is.

The Truth About Payment Calculators

Online credit calculators work best in an ideal world. They use a standardized set of guidelines to estimate monthly or bi-weekly payments based on the data that you provide to them. The thing that I always tell people to keep in mind is just that: it’s ideal. Calculators are a great tool to give you a rough idea of what you might be getting into for a specific car, but there are other important considerations.

The Math Behind Credit and Payment Calculators

While each calculator for each dealership and each vehicle will work slightly differently, they all take most of the same major items into consideration:

  • The price of the vehicle that you estimate that you will be paying
  • The interest rate of your loan
  • How many months you intend to take to pay the vehicle off
  • A down payment or deposit amount
  • Tax rates, if applicable

To keep it easy, calculators take the amount that you will owe towards the vehicle after a deposit/down payment, calculate the interest you will owe (interest can be calculated a few different ways, so we’ll leave that for the specifics), then breaks it down into payments based on your preferred repayment schedule. Your credit score isn’t considered in most online calculators, but it plays a big role in what your interest rate will be, and can also impact the length of loans available to you.

Why Work With a Real Professional for an Auto Loan

As with many things in life, credit and repayment often come with more than meets the eye. You don’t want to work with a finance representative that doesn’t have your best interests in mind. Otherwise, you may end up having someone run your credit (a hard credit check blemishes your credit) multiple times from multiple lenders just to see what rates are the best.
 

When you work with an experienced finance professional (such as myself), you can rest easy knowing that your credit won’t be pushed through again and again. From my many years of experience finding auto loans for people from all over Newfoundland, and my long-term relationships with our financial partners, I know which lenders to assess when submitting a credit application.

Some important things to keep in mind when using online credit calculators:

  • Interest rates: Calculators cannot predict which interest rates will truly be available to you (based on your credit, there might be better rates than it says, or perhaps worse — that's okay!)
  • Which vendor you’ll work with: Different financial institutions have different methods of compounding interest.
  • Tax details: If you have a trade-in, taxes may only apply to the difference between the vehicles, and if you’re eligible for any exemptions, a calculator doesn’t alawys consider this (ours does!)
  • In-dealership discounts: if there are promotions available, you’re responsible for calculating this, as calculators don’t know if there’s anything special happening beyond the numbers provided to it.
  • Existing vehicle balance: if you owe money on your current vehicle/trade-in, you may be required to pay this off separately, or I may be able to help you pay down your existing vehicle and roll the amount owed into your new vehicle's payments.

Our online car loan payment calculator is upfront and easy to use. Because we know how daunting the internet can be, we have included specific details in our calculator that explain how we calculate payments. We also have a clear and simple disclaimer explaining that our calculator is a tool to use for estimates and may be different from what your exact payments will be.
 

The payment shown as a result of using our calculator includes the following standard dealership and required government fees:

  • PPSA Bank Fee of $91.61
  • Doc Fee of $399
  • License Plate Transfer & Renewal Fee of $230

I'll always be sure to go through every step of the financing and payment process with you to ensure that you understand your terms.

The most important tip is to always remember that every situation is different! Always be sure that you’re working with vendors and numbers that you trust. If you’re looking for a great deal on a used car or truck, we can help. Still wondering about financing a vehicle? A full library of helpful posts can be found here, or you can contact me directly with questions!

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