• Car Finance Calculator: Calculate Your Car Loan Payment

    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:

    • Loan Principal – the amount that you will be financing
    • Interest Rate  – the amount of interest that will be charged over the loan period
    • Terms – the length of your loan period in months

    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)

    • P = Loan Principal
    • i = Interest Rate
    • n = The number of payments in the life of the loan, i.e. the loan terms, in months.

    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

    = 608.43

    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:

    • 1-1.005
    • find & hit the y3 button
    • enter 48
    • hit the -/+ button to enter -48
    • enter for calculation

    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.