How to Calculate Car Payments

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Before trekking out to the car lot, calculate your monthly car payment to bolster your negotiating power and help you choose the right loan for your budget.
Knowing how to calculate your car loan payments can help you save thousands on your car loan in the long term.
That’s why the insurance app Jerry has compiled all the information you need to know about calculating the total and monthly interest rates on your loan. Armed with this information, you’ll be able to budget the loan terms that work for you.
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Gather your information

You’ll need to have some basic information handy before you get started. Here are the figures you want to collect.

The overall value of the car and registration

Calculate the car’s overall value by adding the applicable taxes, warranties, and vehicle registration fees together.
If you have prior car loans that you will be rolling over onto your new loan, don’t forget to include this figure in the calculation as well.
Down payments and rebate values can be subtracted from the total amount. If you are trading in a previous vehicle, subtract the trade-in value as well.

The length and interest rate of your loan

Examine your loan contract to clarify the terms of your loan.
Take note of the period length of your loan. This figure will typically be stated in months.
The interest rate is called APR, which stands for annual percentage rate. Be sure to record this figure as well.

Figure out the math

Understanding how to do the math to calculate your car payments will give you a better idea of the total costs that you will pay in interest.
You don’t actually have to calculate the math manually, though. Use an online loan calculator for that.

The formula for calculating car interest costs

I = P X R X T
  • I = total interest cost
  • P = loan principal. This is the amount you borrow before interest.
  • R = APR. This is the interest rate you will pay on the loan. This number should be expressed in decimal form.
  • T = loan term. This is the length of your loan. Make sure that this number is expressed in the same terms as your interest rate. If your APR is annualized and your loan term is expressed in months, divide your loan term by 12 to translate it into annual terms.

How to calculate your monthly payment

The interest rate that you will pay every month is determined by the remaining balance on your loan.
The more of your loan you pay off, the larger the proportion of your payments will go toward your loan principal. This means that you will pay more interest on a monthly basis when you first take out the loan than you will as you pay it off.
A loan interest calculator might include an amortization schedule feature to give you a clear picture of what you will pay on a monthly basis.
You can also use the following formula to calculate your remaining monthly interest rate manually:

Formula for determining your monthly interest rate

MI = (12/R) X LB
  • MI = Monthly interest payment
  • R = APR
  • LB = Remaining loan balance
The CFPB has a worksheet that you can fill out that gives helpful sample scenarios.
Key takeaway There are plenty of car payment calculators available online, but a breakdown of the formula can help you better understand your interest costs and how much is going towards your principal.

Work out the right terms

Many calculators will let you see exactly how your monthly payments will affect your loan term. You can use these tools to effectively budget your loan.
Once you get a better idea of the monthly rate that you can afford to pay down on your loan, you can use this information to shop around for a better deal.
It can be tempting to automatically default to the loan that offers the lowest monthly payments. The catch is that these loans often come with higher APRs and longer loan terms.
Car dealerships or other lenders might propose extended loans to make the monthly rates look more attractive. Be wary of these offers. You could end up owing a lot more than the vehicle is worth.
Using a loan calculator will give you a realistic picture of how much you will really pay so you can land a loan that will cost less in the long term.
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Factor in car insurance

Don’t forget to factor car insurance costs into the equation when budgeting for your loan. It is illegal to drive without car insurance in most states, so it is essential to work into your monthly budget.
Skip the hassle of requesting a million car insurance quotes, and try Jerry.
When you use Jerry to help you save on your car insurance, you can use those savings to lock down a better deal on your car loan. The average Jerry user saves a whopping $879 a year on car insurance.
A licensed broker, Jerry does all the hard work of finding the cheapest quotes from the top name-brand insurance companies and buying new car insurance. Jerry will even cancel your old policy for you.
And to ensure you always have the lowest rate, Jerry will send you new quotes every time your policy comes up for renewal, so you’re always getting the coverage you want at the best price.
This level of service is why Jerry earned a 4.6/5 rating on the App Store—making it the top insurance app in the country!

Jerry’s car loan comparison tool

Jerry can help you compare rates and find out how much you can save on your loan. As an AI-powered broker, Jerry gives you all of the savings and coverage with none of the hassle—and comparing quotes is completely free!
Comparison shopping is the most effective and efficient way to make sure you’re getting the best auto loan for your situation.
You can call around to compare loan terms—but who has the time (or patience) for that? To easily compare multiple rates from top lenders, use Jerry.
Jerry does all the digital research for you. No uncomfortable phone calls, no emails, just savings and an awesome new rate on your auto loan!
Jerry is your one-stop shop for auto loan refinancing.
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