Car Payment Calculators

Calculating the monthly payments on a new car that you're thinking of buying or leasing is not quite as simple as figuring it out your el-cheapo drugstore calculator. It requires a more sophisticated calculator.

A few of the emails I receive at LeaseGuide.com are quite humorous in that some people seemed to have invented their own ingenious (but incorrect) methods for calculating payments. I guess these are the folks who flunked high school math, but when I think about it, I'm not sure this was a topic that was covered when I was in high school.

Whether you plan to lease or buy with a loan it is important to be able to do your own calculations and not rely totally on the dealer's. It is amazing how many times my readers have told me that they caught a dealer "mistake."

If you're going to get a loan, you must borrow the amount of money needed to pay the dealer after any down payments, rebates, trade-in credits, or discounts. However, the amount of the interest that the loan company charges to let you use their money often surprises buyers -- unless you are fortunate enough to qualify for and get one of those zero-interest loans.

Because of the way that a loan is "amortized," the payments in the early part of your loan are mostly interest and very little goes toward paying off the actual loan amount. This can cause great concern when, for example, you want to trade or sell early and discover that you've only paid down your loan by a very small amount -- much less than the sum of the payments you have made up that time. As time goes on, your payments contain less interest and more goes to reducing your loan amount.

To calculate loan payments, you can buy a relatively expensive business calculator, use a computer program such as Microsoft Excel, or use one of the convenient loan calculators that are available on the Internet. I like the calculators at Bankrate.com.

Lease payments can also be calculated with a business calculator, computer programs, and online calculators. However, since lease payments are calculated differently than loan payments, you can't use a loan calculator for leases, or a lease calculator for a loan.

The best explanation of how lease payments are calculated can be found at Lease Payment Formula. And if you want a nice online lease payment calculator, try Car Lease Calculator. Or a more simple lease calculator here. If your own calculations don't come within a couple of dollars of the dealer's figures, you have reason to investigate.

Trade Your Leased Car? Not Likely

Readers of LeaseGuide.com often have difficulty deciding if they should trade their leased car, as they might if the car had been purchased.

Trading a leased car is not quite the same thing as trading a purchased car. The primary difference is that a leased car is owned by the lease company, not the lessee (you, the customer). Since the lessee doesn't own the car, he doesn't have the right to trade it -- with the following exception.

Most lease contracts allow the lessee to "buyout" or purchase their leased vehicle at or near the end of the lease. If the buyout price is less than the vehicle's trade-in value, there is "trade equity" that can be used as credit toward the purchase or lease of a new vehicle. In this case, the dealer agrees to the trade-in value, purchases the vehicle from the lease company for the amount of the buyout price, and gives you credit for the difference.

This is very similar to the situation in which a puchased car still has a loan balance that is less than the trade-in value of the vehicle.

Unfortunately, the situation in which trade-in value is higher than the buyout price is pretty rare. Any case in which the trade-in value is less than the lease buyout price dictates that the car simply be returned to the lease company at lease-end, not traded.

Car Leasing Is Different. Really.

Many inexperienced automotive consumers think that car leasing is simply car renting -- as in apartment leasing. Not true.

Leasing is based on the fact that a vehicle will depreciate in value by a certain estimated amount during the time that you use and drive it. You pay for the difference between its original value and the depreciated value at the end of the lease term. This saves you money because you don't pay for the entire value of car. You return the car to the lease company at the end of the lease.

However, too many folks lease without understanding that leases are designed to be completed. And that the vehicle must be returned in good condition. And that they must pay extra if it isn't. And that they must also pay extra if they drive more miles than originally agreed to -- because more miles reduce the vehicle's value. And that they can't modify or remove equipment from the vehicle -- because the vehicle belongs to the lease company, not you. Without these understandings, leasing can easily become a bad experience. I've actually had people tell me that leasing is a scam, in an attempt to cover up their own lack of knowledge.

Lack of knowledge and preparation about leasing, or any business transaction, will allow those with more knowledge (car dealers and lease companies) to take advantage of you. They are guilty of doing it; you are guilty of letting them do it.

If you think you might be interested in leasing, or don't know if you should, please read the articles at LeaseGuide.com first.