How to Manually Calculate Car Payments

Today is the day that you have finally purchased that new car that you always wanted. You headed to the dealership to nail down the terms of the contract, secure the financing and pick up your new baby. When you arrange for a car loan, you need to determine the amount that you can afford to make on monthly payments. The information that you need to determine the payments is the interest rate, the length of the loan and the total amount of the loan.

Instructions

1

Determine the interest rate per month by dividing the interest rate by 12 months. For example, a 6 percent loan / 12 = 0.005.

2

Add 1 to the interest rate per month. In the example, 1 + 0.005 = 1.005.

3

Raise one plus the interest rate per month to the power of the number of months of the loan. If the number is expressed in years, then multiply the number of years by 12. In the example, if the borrower has the loan for three years, then 1.005 ^ 36 = 1.196680525.

4

Subtract 1 from the number calculated in Step 3. In the example, 1.196680525 - 1 = 0.196680525.

5

Divide the interest rate per month by the number calculated in Step 4. In the example, 0.005 / 0.196680525 = 0.025421937.

6

Add the interest rate per month to the number calculated in Step 5. This is the interest factor. In the example, 0.005 + 0.025421937 = 0.030421937.

7

Multiply the interest factor by the total amount of money borrowed for the car loan. In the example, if the borrower borrowed $15,000, then $15,000 * 0.030421937 = $456.33.