How to Figure Out Interest Paid on a Car Loan

Use an amortization schedule to determine interest paid.

Car loans are installment loans. These are also called closed-end loans. The interest on the loan is pre-computed and added to an amortization schedule when you sign the loan. This makes figuring the total interest relatively straightforward. However, the calculation involved--when computing manually--can be a bit challenging.

Difficulty:

Moderate

Instructions

Things You'll Need

• Car loan statement
• Calculator

1. Calculate the car loan payment. To do this, use this formula: M = P ( R / 12 ) / ( 1 - ( 1 + R / 12 ) ^ -M ). Use these variables: M = monthly payment; P = principal balance; R = rate (in decimal form); M = term (in months); and ^ = exponent. For example, a $12,000 car loan at 6 percent with a five-year term looks like this: M = 12,000 (.06 / 12) / ( 1 - ( 1 + .06 / 12 ) ^ - 60.

2. Perform the calculation to find your payment. Follow the correct order of operations: .06 / 12 = .005. 1 + .005 = 1.005. 1.005 ^ - 60 = 0.7414 (use an online calculator). 1 - 0.7414 = 0.2586. 0.005 / 0.2386 = 0.0210. 12,000 x 0.0210 = 251.47. The monthly payment on this example is $251.47.

3. Use this payment, the term of the loan and the interest rate to calculate the amortization schedule. You may have received an amortization schedule when you signed the loan. Visit Resource 1 to perform an amortization calculation.

4. Enter your principal balance, your rate and your term. Click "calculate." Click "Show/Recalculate Amortization Schedule" at the bottom of the page. This will show the full payments due, with both principal and interest.

5. Add the number of months you paid into your loan. Then, using this number add together that amount of monthly interest payments from the amortization schedule. Note that the amount paid toward interest (in the Interest Paid column) continually drops as you pay against the loan.

References

• Calculating a Car Loan

Resources

• Auto Loan Calculator with Amortization