How to Calculate the Monthly Payment of a Carby Michael Keenan
When you are considering how a new car will fit into your budget, you need to know how much the monthly payments will be. The formula used for calculating your monthly car payment requires you to know how much you need to borrow, how long you will take to repay the loan and the rate of interest that your lender will charge. Typically, new car loans have lower interest rates than used car loans.
Divide the interest rate, expressed as a percentage, by 12 to find the monthly interest rate. For example, if you took out a car loan with an interest rate of 9.24 percent, you would divide 0.0924 by 12 to find the monthly rate of 0.0077.
Add 1 to the monthly interest rate from Step 1. In this example, you would add 1 to 0.0077 to get 1.0077.
Compute the number of payments made over the life of the loan. If the term is in years, multiply by 12 to find the number of monthly payments. If your loan term is in months, the number of months is the number of payments. For example, if you had a 60-month loan, you would use 60 as the number of payments.
Use your calculator to find the value of the result from Step 2 raised to the Nth power, where N is the number of car payments you will make. In this example, you would raise 1.0077 to the 60th power to get 0.631138228.
Subtract the result from Step 4 from 1. In this example, you would subtract 0.631138228 from 1 to get 0.368861772.
Divide the monthly interest rate from Step 1 by the result from Step 5. In this example, you would divide 0.0077 by 0.368861772 to get 0.020875029.
Determine the monthly car payment by multiplying the result from Step 6 by the size of your car loan. Finishing the example, if you borrowed $24,000, you would multiply $24,000 by 0.020875029 to find your monthly payment would be $501.00.
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