How to Calculate Monthly Payments for Car Loans

Have you ever wondered how to calculate monthly payments for car loans? There are many online calculators that can be used to easily help you through this process. However, in order to truly understand where the numbers are coming from, it is important to work through this calculation once on your own. This process gives you a clearer understanding of the amount of interest versus principal you will pay month to month. It can also highlight the importance of paying down your debt sooner rather than later - thus dropping your total payments. Here are the steps to calculate monthly payments for car loans if you are interested in learning where the numbers come from.

Things You'll Need

• Calculator or Spreadsheet Software

Instructions

1. Gather the following information in order to calculate monthly payments for car loans - total loan amount (A), interest rate (R), and the number of monthly payments (N). You can run this calculation for an existing car loan or for one you are thinking of taking out. These fields are commonly available from your loan officer or online.

2. Take the interest rate (R) and divide by 12 to get the monthly value for your auto loan calculation. For example, if the rate on the auto loan was 8%, then the result from this step would equal - .0067 (or .08 /12 ). Be sure to remember to convert your interest rate percentage into the decimal format as shown earlier.

3. Multiply the value from step 2 with the total loan amount (A). If you are planning to take out a $15,000 loan, the results of the calculation would equal 99.99. This value will be used as the numerator for the rest of your calculation of monthly payments for a car loan.

4. Take the interest rate (R) and divide it by 12 again and then adding 1. In our example, this value would equal 1.0067. Once you have this value, raise it to the negative power of the number of months (N) defined in step 1. If you are taking out a 5 year auto loan, then the calculation would look like = (1 + .08 / 12) ^-60). Finally, take 1 and subtract it from your previous value to use as the denominator. The results in this calculation would equal .329.

5. The final step is to take the value from step 3 and divide it by the number from step 4 to calculate monthly payments for car loans. In this example, the value would equal $303.92 (or 99.99 / .329) which is the total amount of principal and interest charged on the vehicle each month for 5 years. You can also use a spreadsheet software to punch in these same formulas to get instant results!

Tips & Warnings

• Play around with the numbers in your formula using different interest rates and principal amounts to see what monthly payment you can afford.

• Be careful about taking out a loan with hidden feeds and extra charges when financing an automobile.