How to Calculate a Car Loan Repayment
If you are looking to purchase a new or used car and want to secure the best deal possible, you might considered calculating a car loan repayment before heading out to shop. Seven out of every ten new automobiles purchased are financed and it is best to be prepared when entering the dealership. You can figure what your car payments will be on a monthly basis or calculate the total cost of purchase, by applying the principals of amortization and making use of a basic algebraic formula.
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Things You'll Need
- New or used car price
- Internet access
- Basic aptitude for algebra (high-school level)
- Loan interest rate
- Loan terms
- Pencil
- Paper
- Simple scientific calculator
Instructions
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1
Write down the following formula for calculating your car loan repayment. This formula consists of principal (P), interest rate (i), and number of monthly payments (m). It appears for calculation as follows: (P x (i / 12)) / (1 - (1 + i / 12)-m).
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2
Assume you take a loan of $15,000 at 7% annual interest rate for a period of 36 months.
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3
Plug in your numbers so that the calculation reads as follows: ($15,000 x (7% / 12)) / (1 - (1 + 7% / 12)-36).
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4
Calculate your monthly loan repayment using a scientific calculator and applying the formula in with the numbers in Step 3. You answer will now read ($15,000 x (7% / 12)) / (1 - (1 + 7% / 12)-36) = $463.15 before taxes and fees, while assuming no down payment.
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5
Determine the total amount you will pay over the term of finance. This is accomplished by taking the total monthly payment, multiplied by the number of months financed. With our example in Step 4, your total purchase and repayment will be $463.15 x 36 = $16.673.40.
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6
Figure the total interest paid on the loan. This is done by subtracting the principal from the total loan repayment. Given the same illustration in the previous steps, this calculation works as follows: $16, 673.40 - $15,000.00 = $1,673.40.
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Tips & Warnings
You can walk into an automotive dealership with an approved loan from a financial institution. This often can help secure a deal in your favor. This approach to financing (in most cases) will afford you the best rates. Keep in mind that credit unions often offer slightly lower rates than banks.
You will find some occasions where a dealership can offer you the best deal on financing, to include zero percent interest from the manufacturer. However, such deals rarely present a consistent offering. Be sure to compare rates with other sources before making a final decision.
References
Resources
- Photo Credit automobile image by razorconcept from Fotolia.com
