How do I Calculate Car Payment Auto Loans?

If you plan to buy a car, you might need to take out an auto loan to finance the vehicle. According to Bankrate.com, your car loan payment shouldn't exceed 15 to 20 percent of your monthly budget. To determine if you can afford a car, you need to know the amount of your monthly payment. To get figure this, you need the amount borrowed, the loan term and the interest rate.

Instructions

1

Divide your annual interest rate by 1200. This is the monthly interest rate of your car loan. For example, if your annual interest rate equals 8.58 percent, you would divide 8.58 percent by 1200 to get 0.00715.

2

Multiply the monthly interest rate expressed as a decimal by the amount borrowed for the car loan. For example, if you borrowed $19,000, you would multiply $19,000 by 0.00715 to get $135.85.

3

Determine the number of months in the term of the auto loan by multiplying the number of years by 12. For example, if you will take 3.5 years to pay off the loan, multiply 3.5 by 12 to get 42 months.

4

Add 1 to the monthly interest rate. In this example, you would compute 1 plus 0.00715 to get 1.00715.

5

Use a calculator to raise the result from Step 4 to the negative Mth power, with M equaling the number of months in the term of the car loan. In this example, you would raise 1.00715 to the negative 42nd power to get 0.741387745.

6

Compute 1 minus the result from Step 5. Continuing the example, you would subtract 0.741387745 from 1 to get 0.258612255.

7

Divide the result from Step 2 by the result from Step 6. The answer equals the monthly car payment. Finishing the example, you would divide $135.85 by 0.258612255 to find the car payment to be $525.30.