How to Calculate a Monthly Car Payment
August 29, 2019
When you buy a new or pre-owned vehicle, manageable monthly payments are crucial to your success. You’ll need to know how to calculate a monthly car payment, and our team at Macon Car Credit can help.
By understanding their payments, Warner Robins, Milledgeville, and Macon shoppers can stay on budget as they shop and find a smart deal for their situations. Read ahead and see how to consider your car loan payments as part of the equation.
Calculating Your Auto Loan Payments
It’s quite easy to calculate loan payments on your own. In fact, with just three pieces of information, you have all you need to get started. You’ll need to know (1) your interest rate, (2) the amount or principle of your loan, and (3) the number of monthly payments.
Obviously, if you’re still shopping, these numbers may very well be in flux. That’s fine! You can experiment with different values and explore what you’ll need to stay on budget. You can extend your term (i.e., the number of monthly payments) to keep payments lower.
Keep in mind, though, that extending your payments will likely result in more interest paid over the term of the loan. Follow the process detailed below to calculate your precise payments.
A Formula for Your Monthly Payments
Ready for some math? Auto loans are amortizing loans, which means the principle and interest are paid down in equal payments over the life of the loan. While monthly payments stay the same, the interest piece decreases, and the principle piece increases, as time goes by.
Luckily, there’s a formula for all this. To calculate your payments, use the formula for loan amortization:
A is your monthly payment, P is the principle of your loan, r is the interest rate per month, and n is the total number of months. Two of these figures you should already have and can plug in to the equation. In the next section, we’ll show you how to calculate r, your monthly interest rate.
Calculating Your Monthly Interest Rate
Finding your interest rate per month is simple. First, you must convert your interest rate to a decimal. So, if, for example, your interest rate is 8.5 percent, it becomes 0.085.
Next, you can divide that decimal by 12 months. For the example above, you’ll get 0.0071 when rounded. Plug this value into the amortization loan formula as r. You can enter your values for P and n as well and calculate A, your monthly payment.
Let’s assume a loan principle of $10,000 over a term of 36 months. Using the equation will yield:
Calculate Your Car Payments with Us
We hope Macon, Milledgeville, and Warner Robins shoppers find this formula helpful! If you need help calculating your monthly car payments, reach out to our team of finance professionals.
We’re happy to assist you in your search for the lowest possible rates, too. Contact us to learn all about your options at Macon Car Credit!