How to Calculate Car Loan Payments

Whether you calculate your car payments online or by hand, you’ll need to gather some basic car information, insurance costs, and your loan term. Read this guide on car payments to learn how.
Written by Jacoba Bood
Reviewed by Jessica Barrett
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
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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
, which stands for annual percentage rate. Be sure to record this figure as well.

Calculate car interest rates and car loan payments

Understanding how to do the math to calculate your car payments will give you a better idea of the
total interest paid on your car loan
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 car 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
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 for your car loan

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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No spam or unwanted phone calls · No long forms · No fees, ever

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.
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Comparison shopping is the most effective and efficient way to make sure you’re getting the best auto loan for your situation.
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