How to Calculate the Monthly Finance Charges on an Auto Loan

Many people finance car purchases.

Monthly finance charges represent the amount of interest that accrues on a loan. Car loans function the same way as other loans, when it comes to calculating finance charges. As you pay off the loan, your outstanding balance declines, making your monthly finance charges lower. As a result, you need to calculate your monthly finance charges each month, because the amount changes. To figure the finance charges, you need to know your annual interest rate and the outstanding balance.

Things You'll Need

• Calculator

Instructions

1. Divide the annual interest rate by 100 -- to convert the rate from a percent to a decimal. For example, if you have 11.28 percent rate, divide 11.28 by 12 to get 0.1128.

2. Divide the Step 1 result by 12, to find the monthly interest rate. In this example, divide 0.1128 by 12 to get 0.0094.

3. Multiply the Step 2 result by the amount you owe on your auto loan, to find the finance charges. You can find your current loan balance on the previous loan statement. Finishing the example, if you owe $8,930, multiply 0.0094 by $8,930 to get $83.94, as your monthly finance charge.

References

• Financial Web: Calculating Interest Rates and APR
• Vertex 42: Amortization Calculator