Car Loan Calculator

How to use the Hardbacon Car Loan Calculator

Our auto loan calculator is designed to be user-friendly. As a user, all you have to do is input the numbers that you have been quoted from your lender into the right box. The calculator then takes over from there. All the fields that you need to enter are clearly labelled, so you can directly plug and play the numbers from the lender. Here is a step-by-step list of what you need to do:

1. The first step is to enter the market price of the car that you are planning to buy in the cell next to where it says “Vehicle Price”. This number should match the total sale price of the car quoted to you minus any discounts or trade-in credits.
2. Next, enter the interest rate that the lender has quoted you in the cell next to where it says “Interest Rate”. Make sure that this is quoted on an annual basis to receive the most accurate result
3. Input the loan term that the lender has offered you in the cell next to “Loan Duration”. This needs to be inputted in years. If you have been offered the loan term in total months, divide the number by 12 to get the loan term in years. For example, 36 months is 3 years, 42 months is 3.5 years, and so on.
4. The last step is to enter the down payment that you plan to make next to where it says “Down Payment”. While 20% is a good minimum to put down, you may be able to obtain loans from lenders that require even lower down payments. However, it should be noted that lower down payments up front lead to a higher monthly repayment amount.    

Understanding the results of the car loan calculator

Once you have entered all the numbers, the last (and most important!) step is to understand what they mean to you as a borrower. Based on the inputs you filled in on the left of the screen, our calculator will provide you with relevant outputs on the right. You should see the following:

• Principal Loan Amount: As mentioned above, the principal loan amount will be the difference between the vehicle price of the car and the down payment you provided. 
• Total Interest: This will show the total amount of interest over the life of the loan. This is over and above the principal that you will repay to the lender for borrowing the funds. Essentially, this amount can be thought of as the cost of borrowing funds.
• Total Loan Payments: This figure represents the total amount that you will pay back over the life of the loan. This includes both the original principal amount plus the total interest costs you have to pay on the loan.
• Your Monthly Payment: All of these numbers boil down to the one number that is most relevant to you: the monthly payment that you have to make to repay the loan. Once you see this figure, you can determine whether or not it is worth it to buy the car you are thinking of.
• Pie chart: The pie chart shows the percentage of loan repayments that are principal repayments and the percentage that are interest repayments. You will notice that as interest rates and/or loan terms go up, the proportion of interest as a total of principal + interest also increases.

Learn more about the Car Loan Calculator Inputs

Before we explain the calculator further, let’s talk about the mechanics of car loans in Canada. The most important numbers you need to keep in mind when applying for a car loan include:

• Vehicle price: This is the total purchase price of the vehicle that you buy. Typically, the vehicle price is determined based on market circumstances and/or what you can negotiate with the car dealer or the person from whom you are buying the car. 
• Interest rate: The interest rate quoted to you represents the cost of borrowing money. It is usually quoted as an annual rate. If it is not, you should ask the lender to quote you an annualized rate to evaluate what you would be paying each year. Taking the same example above, an interest rate of 8% on an $8,000 loan will result in the borrower paying $640 in interest costs each year.
• Loan duration: Often called the loan term, the loan duration is the length of the contract with the car loan lender. Typically, loan terms range between 1 to 8 years, and payments can be made weekly, biweekly or monthly depending on the lender. It is important to note that the higher your loan term, the more you pay in interest over the life of the loan.
• Down payment: Most lenders require that the borrower put a minimum down payment in place prior to approving them for a loan. A good rule of thumb that lenders use is 20% of the purchase price of the car. On a $10,000 car, this would mean that the borrower would have to put down $2,000. The lender will then provide the remaining $8,000 as a car loan.

How are interest rates determined?

Perhaps the most important variable in this calculator is that of the interest rate. The interest rate that a lender will charge you for lending you the funds depends on a wide variety of factors, including:

• Credit score: Borrowers with a higher credit score naturally enjoy a lower rate of interest.
• Credit history: A strong history of on-time repayments and successful debt management makes you a lower risk of default. This is reflected in lower interest rates.
• Loan term: A longer loan term means that the lender is taking a higher risk by lending to you for a larger period of time. All else being equal, longer durations come with higher rates.
• Down payment: Borrowers who opt to place a higher down payment than the minimum amount are viewed favourably by lenders.

It should also be noted that interest is calculated in two ways:

• A simple interest car loan offers the borrower flexibility by charging interest only on the amount outstanding. If the borrower decides to pay off the principal amount faster than required, then the borrower will pay a lower amount of interest over the life of the loan.
• A predetermined car loan means that the total interest payable on the loan is determined right when the loan is offered. In this case, even if the borrower is willing and able to pay off the principal early, they will still have to pay the lender the full amount of interest that was calculated at the inception of the loan.