An online car finance calculator can instantly work out the monthly payment for a car you’re thinking of purchasing. They’re easy to use and can help put your purchase into perspective in terms of value and financing. But for those wanting to work the numbers themselves or people who just want to know how a car payment formula works, the information can be difficult to find. The steps below will help guide you through the process.
Step One: Gather Loan Information
You will need the following numbers to calculate your monthly payment:
Step 2: Use Car Loan Formula
The formula to calculate a monthly car loan payment looks like this: (P x (i / 12)) / (1 – (1 + i / 12)-n)
Step 3: Calculate Monthly Payment Manually
To calculate the monthly payment to finance a car at $20,000 at 6% for 36 months would look like this:
(20000 x (.06/12)) / (1- (1 + .06/12)-36)
(20000 x .005) / (1- (1 + .005)-36)
100 / (1- 1.005)-36)
100 / 0.1643
If you’re a whiz at math, you may have no issue performing the algebra to derive the monthly payment. For others, one common obstacle to correct calculations is working with a negative exponent on the second half of the equation that calculates the compounded interest. An easy way to overcome any difficulty is to use a scientific calculator. When calculating the second half of the equation, enter:
Step Four: Use Online Loan Calculator
This can be used in lieu of Step Three, or to check your work to rule out any doubts. Kelley Blue Book and Bankrate.com have handy auto loan calculators to help consumers in the decision-making process of purchasing a new car.