Common Mistakes When Learning How to Calculate Vehicle Payments

There’s nothing quite like a trip to the car dealership to buy a new set of wheels. Whether it’s a buyer’s first new car or an upgrade to a better model, car shopping can be exciting. It’s easy for buyers to get swept up in the moment and neglect their financial due diligence, but accurately calculating vehicle payments is essential to avoid unpleasant surprises. Most people already know how to calculate vehicle payments using an auto loan calculator, but here are some mistakes to be aware of and avoid.  

Ignoring Add-Ons 

One of the biggest missteps buyers make when calculating their car payments is failing to account for premium add-ons. Dealers may suggest add-ons like heated seats or anti-theft devices when buyers are shopping for cars but remember that these add-ons come at an additional cost that’s rolled into the car loan. These extras can add hundreds or even thousands of dollars to the total cost of the vehicle and may increase interest expenses, too. Ignoring the cost of these features can throw off payment calculations by a wide margin. Buyers should factor in these additional expenses before finalizing a purchase to ensure the total payment remains within the budget. 

Forgetting to Leave a Buffer 

A common mistake buyers make is focusing on the sticker price of the car. Dealerships charge a wide variety based on the services they offer. A destination charge refers to the cost of transporting a car to the dealership, while a conveyance or documentation fee is the cost of the dealer handling the paperwork. Buyers will also typically pay a title and registration fee. These charges and fees can push car expenses over budget. Overestimating the cost of the car may provide a good buffer to account for unanticipated costs and fees. 

Not Considering Credit Scores 

Credit scores play a crucial role in determining loan interest rates. A higher credit score typically results in lower interest rates, reducing the overall cost of the vehicle. Buyers may make the mistake of assuming they qualify for the best rates without checking their credit in advance. Reviewing credit scores before applying for a loan and checking pre-approved loans can help buyers get a more realistic picture of their car loan payments. People with low scores may want to address credit report errors or improve their credit before applying for an auto loan. 

Not Reading the Fine Print 

Loan agreements often contain information about prepayment penalties, hidden fees, or balloon payments that many car dealers won’t disclose upfront. Neglecting to read the fine print may mean buyers don’t get a full picture of what they’re signing up for. It’s too easy to miscalculate monthly car loan payments when one doesn’t fully understand the terms of the loan and all the fees involved. Before signing any loan agreement, buyers should carefully review the terms, ask questions, and ensure they fully understand the financial commitment they are making. 

Calculating car payments before getting a loan can help with budgeting and money management efforts. However, having the right information can provide a more accurate picture of both the overall cost of the car and monthly payments. Don’t hesitate to ask questions at the dealership or ask for extra time to review the loan agreement before signing. 

Disclaimer: This content is sponsored by myFICO and is provided for informational purposes only. The information shared here is not intended to serve as financial, legal, or credit-related advice. Readers are encouraged to consult with their personal financial advisors or credit professionals to assess their specific situation. To learn more about myFICO’s services, including credit scores and monitoring tools, please visit the myFICO website or reach out to a myFICO representative. 

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