Auto Loan Payment Calculator

Understanding the Auto Loan Calculator

An auto loan calculator is an essential tool for anyone considering financing a new or used vehicle. It provides a clear estimate of your monthly payment, allowing you to determine if a specific car fits within your budget before you step into a dealership. By experimenting with different inputs, you can understand how factors like the down payment, interest rate, and loan term affect your overall cost.

How It Works

The calculator determines your total loan amount and then applies the standard amortization formula to find your monthly payment.

• Vehicle Price, Down Payment & Trade-in: These determine the initial amount to be financed. A larger down payment or trade-in value reduces the loan amount, leading to lower monthly payments.
• Sales Tax: This is calculated based on the vehicle price after the trade-in is deducted, and it is added to the total amount you need to finance.
• Interest Rate (APR): The annual percentage rate is the cost of borrowing money. A lower APR results in a lower monthly payment and less total interest paid over the life of the loan.
• Loan Term: The length of the loan in months. A longer term will result in a lower monthly payment but means you will pay more in total interest. A shorter term has higher payments but saves you money on interest.

The Formula

The core of the calculator uses the loan amortization formula:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where: M = Monthly Payment, P = Principal Loan Amount, i = Monthly Interest Rate, and n = Number of Payments.

This tool empowers you to shop for a car with confidence, knowing what payment you can comfortably afford.

Frequently Asked Questions