You’ve found the car you want, and now it’s time to figure out if you can afford it. That means calculating your monthly auto loan payment. If you don’t know how to calculate interest or have never bought a new (or used) car before, don’t worry: It’s not as hard as it seems. Here are some simple steps to help you figure out how much your monthly payment will be:
Understand how auto loans work
Understanding how auto loans work is essential to calculate your monthly payments. Unlike other types of loans, auto loans are typically repaid over a period of time rather than all at once.
For example, if you take out an auto loan for $20,000 at a 5% interest rate and 20 years (240 months), the total cost of that loan is $23,846.90. The payment amount for this type of loan can be calculated by multiplying the amount borrowed by the annual interest rate divided by 12 or 240 times $1/month in this case.
Calculate the monthly interest on your loan
You can use the same formula to calculate your monthly interest payment.
Subtract your loan amount from the total balance. This is how much you owe on your auto loan at any given point in time, minus any deposits and payments that have been made since then.
Divide that number by 12 months (the length of most auto loans). This is how much interest was accrued each month over the course of your loan period thus far.
Add this figure to your original loan amount to get an overall monthly interest payment due each month throughout the life of your auto loan agreement.
Use online calculators to get a ballpark figure
Online calculators can be helpful, like a car loan refinance calculator, but not all calculators are created equal. Instead, use a variety of calculators to get a better idea of your payments. You’re looking for an average of estimates—don’t rely on just one calculator.
If you’re having trouble finding a reliable and trustworthy online auto loan calculator, try searching “auto loan payment calculator” or similar terms on Google and see what comes up.
Use auto loan calculators
This is a simple way to calculate the monthly payments for your auto loan. To start, you’ll need to know the amount of money you’re borrowing, your interest rate and your down payment (if applicable).
All of these things can be found on your finance contract or in your monthly statements from the lender. Next, plug those numbers into an online calculator.
And voila! You now know how much it will cost every month to pay off your car loan! This information will help you budget accordingly so that you don’t end up paying more than necessary over time.
As per Lantern by SoFi advisors, “Refinancing your car loan can lower your interest rate and save you hundreds and even thousands of dollars over the term of your loan.””
Auto loans are an important part of your financial future, and it’s important to know how much you can afford to pay each month. Luckily, with these quick steps and tools they’ve provided, calculating the payment on your auto loan should be easy.