How to Figure Out Monthly Car Payments

Calculate car loan payments to determine if you can afford the car loan.

Those buying a car will often take out a car loan to help pay for the vehicle. The car loan will require monthly payments over a set amount of time, and payment will vary depending on the amount borrowed, the interest rate charged, and the length of time of the loan. It is important when obtaining a car loan to shop around for the lowest interest rate. With a lower interest rate, the borrower will pay less in interest payments per month.

Instructions

1. Write out the total amount you borrowed for the car, the interest rate and the amount of time you have to pay the loan back. For example, a person borrows $6,000 for a car at an interest rate of 10 percent. He has four years to pay back the money.

2. Calculate the interest rate per month and the number of payments. The interest rate per month equals the annual interest rate divided by 12 months. In the example, 10 percent divided by 12 months equals 0.008333333. The number of payments equals the number of years to repay times 12 months. In the example, 4 years times 12 months equals 48 payments.

3. Multiply the amount borrowed by the interest rate per month. In the example, $6,000 times 0.008333333 equals $50.

4. Add 1 to the interest rate per month, then raise the sum to the negative power of the number of required payments. In the example, 1 plus 0.008333333 equals 1.008333333. Then, 1.008333333 raised to the power of -48 equals 0.671431999.

5. Subtract the number calculated in Step 4 from one. In the example, 1 minus 0.671431999 equals 0.328568001.

6. Divide the number calculated in Step 3 by the number calculated in Step 5. In the example, $50 divided by 0.328568001 equals $152.18 in monthly payments.

References

• Oak Road Systems: Loan or Investment Formulas