How to use an Auto Loan Calculator
What is your Credit Score?
An auto loan calculator is designed to give you an idea of how much you can afford to borrow and, therefore, how much you can afford to spend on purchasing a car. The software used to make the calculations uses information you enter from your credit report so it is important to request yours from one of the major credit bureaus: Transunion, Equifax and Experian.
It’s always a good idea to know what your credit report says and what your credit score is before you apply for a loan because this is what will determine whether or not your application will be approved. In many cases credit reports include incorrect information that can legally be removed or corrected.
So what is a credit score?
A credit score is a three-digit number that lenders look at to estimate how much of a risk it would be to give you a loan. The score ranges from 300 to 850; most people will have a score of between 600 and 800. It works by comparing an individual’s credit history to millions of other individuals as well as looking at payment reports from various finance companies such as credit card issuers.
How does an auto loan calculator work?
Loan calculators use figures you enter from your credit report to work out how much you need to pay each month and how long it will take to pay the loan the in full (provided the repayments are met on time each month). There are two types of auto loan calculator:
The first works out how much you will pay each month over a specified period of time. For this type of calculator you would need to enter the full loan amount and your preferred term (period of time) of repayment.
The second type works the other way around. You enter the amount you feel you can afford each month and the auto loan calculator will then offer you a number of options with varying loan amounts and terms of repayment.
An important thing to remember when using an auto loan calculator is that it is only meant as a guide as they only have the information from your credit report to work with. Lenders would look at your credit report as well as income, employment history and the type of credit you are seeking. Banks will also use credit reports from all three of the major credit bureaus and use the average of the three scores. So don’t be surprised if the auto loan calculator you use gives a different score to that of your chosen lender.