How to Calculate Interest Paid on a Car Loan
When buying cars, most people take out loans to finance their purchases. These loans charge interest, which compensates lenders for the risk they take by issuing the loans. To calculate the total interest paid on a car loan, you need to know the monthly payment, the original loan amount and the term of the loan. The longer the term of the loan, the more interest you will pay.
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Instructions
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Calculate the number of payments that you will make on the car loan by multiplying the number of years it will take to pay off the loan by 12. For example, if you have a four-year loan, multiply four by 12 to get 48 payments.
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Multiply the monthly payment of your loan by the number of monthly payments you will make to find the total paid over the life of the loan. You can find the monthly payment by contacting your lender or by using an online calculator (see Resources). For example, if your car loan payment is $512.67, multiply $512.67 by 48 to find the total payments to be $24,608.16.
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Subtract the original amount of the car loan from the total payments. Finishing the example, if you borrowed $21,000, you would subtract $21,000 from $24,608.16 to find that you would pay $3,608.16 in interest over the life of the loan.
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References
Resources
- Photo Credit yellow car, a honda japanese sport car model image by alma_sacra from Fotolia.com
