Calculating Auto Loans

How to Calculate Your New Car Interest Payments


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If you are interested in learning how to calculate auto loan interest payments, you will be relieved to know that the process is quite simple. Understanding how lenders calculate auto loan interest payments on new car loans is important when you begin shopping around for a new car.

Car loan rates directly affect the interest payments on your new car loan and should be explicitly defined in the auto loan terms. Calculating the interest payments on your new car loan can be done by following a simple process.



Calculate the Total Interest Payment

In order to calculate your interest payments over time, it is necessary to know the total amount of interest due on your loan. Begin by multiplying your loan's interest rate by the number of years you will be paying the loan off. For example, if you have a 6 percent interest rate on a five-year term, you would multiply 0.06 by 5 to get 0.30. Multiply it by the total amount of money you are borrowing on the loan to get the total amount of interest you will pay over the course of paying off the loan.

If you get a $20,000 loan at 6.0%, you will pay $6,764.51 in interest for the five-year duration, making that a total of $26,764.51. That's considerably more than you will take out.

Using a monthly payment calculator brings is similar in that it simplifies loan calculations. Enter in the amount borrowed, the interest rate and the time period. Using the same example, your monthly payment would be $386.65.

Both types of calculators give an approximate total, whether it’s interest or a monthly payment. Fees may alter the numbers given but offer a good estimate.

Divide Total Interest by Time

Once you have the total amount of interest you will pay off over the life of the loan, divide this number by the number of years you will be paying on the loan to determine the yearly interest payments. You can then divide this number by twelve to determine the amount of your monthly payment that will be applied to interest. An auto loan calculator available on the Internet can aid in this process, which can help you customize your payment options to fit your budget and financial schedule.

Before you take out a loan for a new or used car, you should calculate the auto loan interest that you’ll end up paying on the loan. Auto loan terms can be hard to understand sometimes, if not misleading.

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