How to Figure Car Interest Loans
Knowing how a car loan will fit into your budget requires determining what your monthly payment will be. To calculate this, you need to know how much you are borrowing, how long you will take to repay the loan and the interest rate that you will pay. Consumer Reports recommends that your total debt payments, including your car payment, not exceed 36 percent of your total income.
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Instructions
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Determine the amount of money you need to borrow. Don't forget to include the costs of the registration, title and taxes.
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Determine how long you will take to repay the loan. Most loans are repaid within two to five years.
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Determine the interest rate you will pay. The rate will be higher if your credit score is low or if you take a longer term to repay the money. You will also pay a higher interest rate on a used-car loan than on a new-car loan.
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Calculate your monthly car payment using the following formula, in which L is the loan amount, R is the interest rate and T is the number of years you will take to repay the loan:
Monthly Payment = L (R / 12) / (1 - ( 1 + R / 12 ) ^(-T*12) )
For example, if you took out an $14,000 loan at 9 percent interest to be repaid over four years, your monthly payment would be $348.39.
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Tips & Warnings
Check your credit score before applying for an auto loan so that you can correct any errors on it.
Shop around for an auto loan before you go to the dealer so that you can compare the dealer financing to those of other financing sources without having to accept the offer blindly.
