Monthly Car Payment Calculator
Use this calculator to estimate your monthly car payments based on the loan amount, interest rate, and loan term.
Your Estimated Monthly Payment:
$0.00
Understanding Your Monthly Car Payment
Purchasing a vehicle is a significant financial decision, and understanding how your monthly car payment is calculated is crucial. This calculator helps demystify the process by taking into account three primary factors: the loan amount, the annual interest rate, and the loan term.
Loan Amount:
This is the total amount of money you are borrowing from the lender to finance your car purchase. It typically includes the price of the vehicle minus any down payment you make.
Annual Interest Rate (APR):
The Annual Percentage Rate (APR) is the yearly cost of borrowing money, expressed as a percentage. A lower interest rate means you'll pay less in interest over the life of the loan, resulting in a lower monthly payment.
Loan Term:
The loan term is the duration over which you will repay the loan, usually expressed in years. A longer loan term can result in lower monthly payments, but you will end up paying more interest overall. Conversely, a shorter loan term will have higher monthly payments but will cost you less in total interest.
How the Calculation Works:
The monthly car payment is calculated using a standard loan amortization formula. The formula considers the principal loan amount, the monthly interest rate (annual rate divided by 12), and the total number of payments (loan term in years multiplied by 12).
The formula is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]
Where:
- M = Your total monthly mortgage payment
- P = The principal loan amount (the amount you borrow)
- i = Your monthly interest rate (annual rate ÷ 12)
- n = The total number of payments over the loan's lifetime (number of years × 12)
Example Calculation:
Let's say you're buying a car and need a loan for $25,000. You've secured an annual interest rate of 5%, and you plan to repay the loan over 5 years.
- P = $25,000
- Annual Interest Rate = 5% = 0.05
- i = 0.05 / 12 = 0.00416667
- Loan Term = 5 years
- n = 5 * 12 = 60
Plugging these values into the formula:
M = 25000 [ 0.00416667(1 + 0.00416667)^60 ] / [ (1 + 0.00416667)^60 – 1]
M ≈ $482.51
Therefore, your estimated monthly car payment would be approximately $482.51.
Use our calculator above to easily determine your potential monthly payments for different scenarios!