The Strengths and Flaws of an Car Payment Calculator

If we were to predict the next species facing extinction, we’d probably say that they’re customer service reps and consultants. The internet seems to be “killing” them off. More people go online to get things done, whether it involves deliveries or shopping. Looking for a car is no different. You most likely wouldn’t even think of setting foot in an auto dealership before doing your research online. And you can even give yourself a good idea of how much you’ll pay for a loan thanks to online calculating tools. Perhaps you’ve found such a site, and figured out what an ideal monthly payment will look like for you. But here’s a word of caution- car loan payment calculators, although reliable, don’t always paint a detailed picture. That’s why you’ll need to consult a second source.

More than Clicking a Few Buttons

If you’ve recently used a payment calculator, you know the drill. You land on the page, and stumble upon a few fields that ask you to input some numbers. There are probably some bar and pie graphs next to it, so you can see a visual of what your payments are. So you plug away. You enter your loan amount, down-payment, trade-in value, interest rate, loan term and start date. Assuming you have a decent internet connection, you’ll see your monthly payment pop up in a few seconds. And those beautifully coloured graphs will change shape to show you what it all looks like.

As mentioned in the beginning, these numbers are helpful in giving you an idea of what your monthly payment may look like. You can even reference these estimates to tweak your budget to get you ready for an auto loan commitment.

But even if those numbers might reflect what you’ll actually pay, you’ll never know for sure. You’d actually be lucky if what you see on your screen is what will leave your wallet. Calculators for auto payments only tread the surface of what truly determines your monthly payments. You’ll only know the real figure by digging deep.

An Equation Calculators Can’t Solve Alone

If math wasn’t your best subject in school, your calculator was probably a lifeline. But there’s a phrase out there used by many teachers which says, “a calculator is only as smart as the person using it!”. Not only is it true for math class, but it’s also the reality of dealing with auto loans. In fact, a calculator is even more deceiving in the car loan business, because not all the answers are available at the push of a few buttons.

They don’t factor in credit scores

That three-digit number which you work so hard to maintain or raise – your credit score – is a factor that a payment calculator doesn’t compute. And you already know that your score makes a big deal when it comes to getting approved for a loan. So even if an online calculator said you’d only have to pay $225 a month, your score might not be high enough to qualify for that loan. The opposite is also true. You might think that a particular loan is out of reach for you, but your credit score might qualify you for it. Until payment calculators include a credit score section (which they most likely won’t), you’ll have to look further than your computer screen for answers.

They don’t ask for your income statement

Your standard auto payment calculator won’t ask you for your income. But a lender WILL consider that before approving you for a loan. After all, if there’s a disconnect between what you earn and what you should spend, lenders will see it as a red flag that you may have difficulties paying off the loan. The way you view your budget will be different from the way a lender sees it. You might justify your ability to make a payment, but a lender could see difficulty for you down the road.

They overlook variable rates

In most cases, auto loan rates are fixed. However, there are lenders that offer variable rates, making a payment calculator unreliable at times. It’s impossible for a calculator to determine your monthly payments if the interest rates are always fluctuating. In other words, you’d have to wait and see whether it rises or falls, to get a true estimate as to what you’ll pay. This shouldn’t be something to worry about since a lender will most likely offer you a fixed rate. But it’s worth knowing if you happen to get a variable plan.

They don’t offer a field to calculate incentives

Sometimes, dealerships or manufacturers feel extra generous, and may offer incentives or rebates. In such instances, the monthly payment or size of your loan may change based on such a promotion. The number seen in your payment calculator might no longer apply to you. Again, car loan companies won’t always offer these incentives, so it’s not a pressing issue.

On Whom Should You Rely

There’s no reason to avoid a payment calculator completely. However, you shouldn’t assume that what you see on screen is the end-all and be-all of paying for a car loan. You can see from the variables listed above, that you need to actually speak with a person instead of an internet app. Generally, the people you need to speak with will be financial or credit advisors.

Their job is to go beyond the basic number crunching that a car loan payment calculator does. Remember, there are a ton of factors that determine whether you’ll get approved for a loan or not. A better way to know where you stand, is by dealing with a registered credit or financial advisor.

Going past the screen

• You see the bigger picture – Many people are shocked when they don’t qualify for a loan. Others are surprised when they are. The point here, is that you never know what you can get until your loan application gets processed, or at least have a sitdown with a financial expert.

• Exposed to more options – Let’s say you’re aiming to be financed for 6.99%. But after speaking with a credit advisor, you can get a loan with a 4.5% interest rate. Wouldn’t you cherish your advisor for finding you such a deal? Of course! The finest payment calculators still haven’t learned the negotiation skills of a financial expert.

• The long-term – Keep in mind, that auto loans are flexible, and that’s evident with features such as refinancing. When you decide to refinance your car, the terms you originally set out for yourself will change. This is something that a lender can explain to you in fuller detail.

Don’t Use a Calculator as Your Crutch

The purpose of this post isn’t to label auto payment calculators as useless. They’re actually ingenious. But like all inventions, especially those made for the web, these calculators do have their limits, and you need to be aware of them. Doing so can spare you from confusion and disappointment. You can make an estimate using one of these online tools, but don’t make them your guiding light – it can go dim pretty fast if a credit specialist paints you a different picture from what you expected. If anything, keep it as a projection, not a certainty. Relying on a financial advisor is a much safer bet since they’ll break down all the factors needed to give you a more accurate number. As you can see, they’re far from being a vanishing breed.

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