How to Determine Car Loans
Car loans are often required to help buyers finance new car payments. Calculating the payment before you sign for the car will help you determine how much you can afford. In addition to the monthly payment, you should also factor in insurance and maintenance costs for your new car when budgeting for expenses. To calculate your monthly car payment, you need to know the periodic rate, the term of the loan and the amount you have to borrow.
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Instructions
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Determine the term of your loan. Most car loans will last between two and five years.
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Convert the term of the loan from months to years by multiplying the number of years by 12. For example, if your loan was going to be repaid over three years, it would have a term of 36 months.
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Determine how much money you need to borrow. When determine how much, make sure you account for additional costs of buying a car such as title fees and closing costs.
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Determine the interest rate for your loan. The interest rate will depend on your credit score: the more creditworthy you are the lower your interest rate. Your interest rate will also be lower if you choose a shorter loan term and if you buy a new car rather than a used car.
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Determine the periodic interest rate of your loan by dividing the annual interest rate by 12. For example, if your annual interest rate was 9 percent, the periodic interest rate would be 0.75 percent.
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Calculate the monthly payment for your car loan by using the following formula where I is the periodic interest rate, M is the number of months of the loan and A is the amount borrowed:
Monthly Payment = ( I + I / ( ( 1+ I )^ M - 1)) * A
For example, if you borrowed $18,000 with a 0.75 percent periodic rate over 36 months, your monthly payment would be $572.40.
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