How to Calculate Monthly Car Payments

Your car is often the biggest or the second-biggest investment you'll ever make, depending on whether or not you ever buy a house, so the monthly payments you'll have to make are likely to be of interest to you. Fortunately, there's a simple formula to check your monthly payment, provided you know the amount you're financing (the principle), the length of time you'll take to pay the loan back and the interest rate.

Things You'll Need

• Calculator

Instructions

1. Calculate the amount you intend to finance to buy the car. This amount will be however much the car costs, including tax and license, minus any down payment you'll be making. Call this number P for the car loan principle.

2. Determine the rate of interest at which you'll be financing the loan. This number will be i, for interest

3. Decide the number of months for which you'll be financing the car, which will be the number of monthly payments you'll need to make. Call this number n, for the number of monthly payments.

4. Your car payment (M) can be calculated by using the formula
   M = [(P x i)/12]/[1-(1+i/12]^-n].

   For example, if you need to borrow $20,000 to finance your car at a 6% rate of interest for 48 months, your monthly payment will be [(20,000 x .06)/12]/[1-(1+.06/12)^-48] = $469.70 per month.

References

• teachertech.rice.edu: Calculating Monthly Car Loan Payments