Most people take out a loan to cover the cost of their new vehicle. Calculating the monthly payments are important because you need to budget appropriately to make sure you can afford the car. You should also be careful that you do not get upside-down on a loan you may have trouble repaying. Upside-down refers to the situation where you owe more on your car loan than the car is worth. To calculate monthly payments, you need to know the interest rate, term and amount borrowed.
Instructions
- 1
Determine the interest rate you will pay on your auto loan. The better your credit score the lower the interest rate you will pay. Also, used car loans have higher interest rates than new car loans.
2Determine the amount of time you will take to repay the loan. Most car loans range from 24 to 60 months. The longer the term of your loan the higher the interest rate you will pay.
3Determine the amount that you will borrow. Do not forget to include closing costs, taxes and licensing when considering how much you will have borrow.
4Calculate your monthly payment by using the following formula where A is the amount borrowed, R is the annual interest rate and T is the term of the loan in months.
Monthly Payment = ( R/12 + R/12 / ( ( 1+R/12)^ T - 1)) * A
For example, if your interest rate is 5.5 percent, your term is 48 months and you borrowed $15,000, your monthly payment would be $348.85.
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