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Auto Finance Tips
Simple Car Finance Calculations
You Do The Math
By Philip Reed, Senior Consumer Advice Editor
Email
If you are looking for a good deal the next time you buy or
lease a new or used car, you should do your own car finance calculations ahead of time. Then,
when you get to the dealership, your numbers should agree with theirs.
Edmunds.com has created a powerful and flexible suite of calculators that performs the calculations you will need if auto financing is on your agenda. However, there are times when you are away from your computer or
just want a more hands-on approach to handling the numbers. Here's how to do several
calculations you might need when figuring the cost of your car:
How to Figure Sales Tax
Often, car payments are quoted without including the tax and licensing fees. This
extra expense can come as a nasty shock later on. So take a moment to figure out
what they will be before you go to the dealership.
If you are considering buying a car for $20,000, make sure you know what all the
options cost and add on the "destination fee" (all cars include a destination
fee, typically between about $300 and $600). Once you have this total, find out
what your state's sales tax is. If it is 8 percent, convert this to a decimal
number by adding .0 in front of the number. So 8 percent becomes .08. Now use
the following formula:
Cost of the car + options + destination fee X sales tax
In the example, let's say that the car is $20,000 and the options total $600.
The destination fee is $495.
$20,000 + $600 + $495 = $21,095
To get the sales tax, multiply this by .08:
$21,095 X .08 = $1,687.60
Added to the cost of the car, we arrive at the grand total of $22,782.60.
How to Figure Title and License Fees
Car dealerships are often vague about the DMV fees charged to a customer because
there are many separate fees — most of them small and seemingly insignificant.
However, these fees do add up, and you should budget for them ahead of time. You
won't be able to compute these fees to the penny, but you should get an idea of
what they will cost you.
In most states, the DMV fees are between 1 and 1.5 percent of the purchase price
of the car. (In the second and ensuing years, these fees drop, and then, later,
level off.)
To get the DMV fees for our example car, go back to the cost of the car + options
+ destination fee. Now multiply this by .01 or, if you're the conservative type,
.015.
$21,095 X .015 = $316.43 for DMV fees
Now we see that the $20,000 car has climbed to $23,099.02 once the sales tax and
DMV fees have been added. Are you sure you can afford that car you're eyeballing?
Figuring Auto Loan Payments
Interest on the auto loan has to be computed using a complicated calculation called
"amortization." Edmunds.com has created a calculator that can perform this calculation
for you so you can arrive at your accurate monthly payment for the car loan.
For more information about how to use these financial calculators, read Take
Control of the Numbers.
Figuring Car Lease Payments
You can calculate your car lease payments as long as you have certain figures such
as the residual value and the interest rate (in leasing, the interest rate is
expressed as a multiplier called a "money factor"). A complete explanation is
given under Edmunds Do-It-Yourself Leasing Guide. Again, these calculations are complex and can quickly be performed
by the Edmunds' lease calculator. However, if you would like to manipulate the data yourself,
we've copied the formula below for you adventurous types:
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1.
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Sticker Price of the car plus options |
|
$23,000 |
|
2.
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Times the residual value percentage |
X
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..57 |
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3.
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Equals the residual value |
=
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$13,110 |
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4.
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Invoice price of car minus incentives (net capitalized cost) |
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$20,000 |
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5.
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Minus the residual (From line 3) |
-
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$13,110 |
|
6.
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Equals the depreciation over 36 months |
=
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$
6,890 |
|
7.
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Depreciation (Line 6) divided by term in months |
÷
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36 |
|
8.
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Equals the monthly depreciation payment |
=
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$
191.39 |
|
9.
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Net capitalized cost (From line 4) |
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$20,000 |
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10.
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Plus the residual (From line 3) |
+
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$13,110 |
|
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Equals
|
=
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$33,110 |
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11.
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Times the money factor |
X
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.0037 |
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12.
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Equals money factor payment portion |
=
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$
122.51 |
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13.
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Monthly depreciation payment (from line 8) |
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$
191.39 |
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14.
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Plus money factor payment portion (from line 12) |
+
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$ 122.51 |
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15.
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Equals bottom monthly lease payment |
=
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$
313.90 |
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