How to Calculate Car Loan Payment

by Pheori Wiley

It is a good idea to be prepared and know exactly how much you can afford to pay monthly on a vehicle before you go to the dealership and sign a contract. You should always investigate your pricing options---this is the most important thing to do after negotiating price. You should find out what your monthly loan payments might be using several different sets of criteria so that you can determine where to get the loan, how long you want to pay it off and how much you can actually afford. You can either do the calculations yourself or use a loan calculator that you can easily find online for free.

Do It Yourself

Find out the principle of the car loan; this is the cash value of the car.

Find out the term of the loan; this is typically about 48 months but can vary, depending on your lender or your personal preference.

Find out what the interest rate is on the loan. Your interest rate can be affected by your credit score, how much money you have to put down on the vehicle, how long your loan term is and who you go through to get financing; a financial institution, the dealer or third party.

Use the formula (P x (i / 12)) / (1 - (1 + i / 12)^-n) = monthly car loan payment for calculating the loan payment; P is the principle, i is the interest rate and n is the term or number of payments you will make. An example: P = $25,000 i = 6% n = 36 (months) x = monthly car loan payment x = ($25,000 x (6% / 12)) / (1 - (1 + 6% / 12)^-36) x = (25,000 x (0.06 / 12)) / (1 - (1 + 0.06 / 12)^-36) x = (25,000 x 0.005) / (1 - (1 + 0.005)^-36) x = 125/1-(1.005)^-36 x = 125/1-0.835645 x = 125/.164355 x = $760.55 Your monthly car loan payment is roughly $760.55 based on this model.

Use an Online Calculator

Get the principle, or cash value of the car you want to purchase.

Decide on a term for the loan. This may be flexible, but it is according to your lender.

Get the interest rate percentage from the lender, which is affected by the down payment on the vehicle, your credit score, who your lender is and your loan term.

Have ready the other factors in your payments such as your down payment amount, the customer cash rebate offered by the dealer, the trade in value of your trade-in vehicle, the amount owed on your trade-in, any title and registration fees you'll have to pay and your state sales tax percentage.

Find an online loan calculator and fill in the information. There are a number of free options.


  • check The "Do It Yourself" calculation method does not take into consideration other factors that may raise or lower your rate, such as your trade-in vehicle value or applicable taxes and fees.

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About the Author

Pheori Wiley is a freelance writer who has written articles for Helium and Associated Content, among others. She has been writing professionally since 2003 and has used her knowledge of programming, Web development and auto repair to share in her writing what she learns from her day-to-day adventures.

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Photo Credits

  • photo_camera © 2009 Pheori