How to Calculate a Car Loan Payment Rate

Car loans provide a borrower a means to finance the purchase of a car. The borrower is required to repay the money in monthly installments over a set period of time. Before purchasing the car, the borrower needs to calculate the estimated monthly payment to determine whether the expense can be afforded each month. If not, the borrower should not purchase the vehicle.

Instructions

1

Determine the interest rate each month that the lending service will charge. For example, if the lending service is charging 12 percent on a loan, then the monthly interest rate is 1 percent, or 0.01.

2

Multiply the interest rate per month by the amount of money borrowed. For example, if you borrow $20,000, then $20,000 multiplied by 0.01 equals $200.

3

Multiply the years the borrower has to pay the loan back by 12. This is the number of payments on the car. In our example, if the borrower has five years to pay the loan, the number of payments would total 60.

4

Add the interest rate per month to 1. In our example, 0.01 plus 1 equals 1.01.

5

Raise the number calculated in Step 4 to the power of the negative of the number of months needed to repay the loan. In our example, the 1.01 raised to the power of -60 equals 0.550449616.

6

Subtract the number calculated in Step 5 from 1. In our example, 1 minus 0.550449616 equals 0.449550384.

7

Divide the number calculated in Step 2 by the number calculated in Step 6 to determine the car payment. In our example, $200 divided by 0.449550384 equals $444.89 as the borrower's monthly payment.