How to Figure Monthly Auto Loan Payments

Car Payment Calculator

Loan Period Length (months)
Annual Interest Rate (decimal)
Principal (amount borrowed)

You pay $ per month.
Total interest paid: $

Banks and lenders compute your monthly car payments based on the annual interest rate of the auto loan, the length of the loan, and the amount you borrow. You can follow the steps below to learn how to compute your monthly car payments by hand. Or, you can simply use the auto loan calculator on the left. Just input the interest rate, the number of months of the car loan, and the amount financed. The calculator will tell you what your monthly payments are and how much total interest you will pay.

(1) First, write the annual interest rate as a decimal, and call this number R. For example, if the annual interest rate on a car loan is 8.4%, then you write R = 0.084.

(2) Next, multiply the number of years by 12 to find the number of months in the loan period. Call this number N. For example, if you have a 3 year auto loan then N = 36.

(3) Now calculate (1+R/12)N, and call this number W. Keep in mind that N is an exponent, so you need to use the xy button on your calculator, not the multiplication button. For example, if R = 0.084 and N = 36, then W = (1+.007)36 = 1.28547. Keep at least 4 digits behind the decimal point for accuracy.

(4) For the principal of loan--the amount you borrow--call this number P.

(5) Finally, compute the quantity (R/12)PW/(W-1). This gives you the dollar amount of your monthly auto loan payment.

Example: Suppose you borrow $15,000 for 3 years at 8.4 percent annually. Then the three variables are R = 0.084, N = 36, and P = 15000. Using W = (1.007)36 = 1.28547, we have (R/12)PW/(W-1) = (0.007)(15000)(1.28547)/(0.28547), which equals 472.81. Thus, the final answer is $472.81 for the monthly car payments.

Calculating the total interest you pay: Multiply the monthly payment by the number of months, then subtract the amount borrowed. For example, (36)(472.81) = $17,021.16, so this is the total amount of money paid over 3 years. And since $17,021 - $15,000 = $2,021, the total interest paid over 3 years is $2,021.

You can cut down on your monthly payments by borrowing less and getting a lower interest rate. You can also reduce your monthly car payments by extending the period of the loan (though this will increase the total interest paid). You can save on total interest by shortening the lending period (though this will raise your monthly payments).

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