How to Calculate Car Payments

You've just seen the car of your dreams, but you're not sure if the price is right. In a few steps, you can calculate your potential car payments and decide if you'll be able to afford a new ride.

Step 1: Convert the interest rate percentage to a decimal
Convert your loan's interest rate to a decimal number by dropping the percent sign and dividing the number by 100.

Step 2: Divide decimal number by 12
Divide the interest rate on your car loan by 12. Write this number on a piece of paper.

Step 3: Multiply by your car loan principal
Multiply the number by the loan's principal amount -- the total amount of your car loan. Write this number down, as it will be used in your final calculation.

Tip
Remember to subtract any down payment you might make from the new car's purchase price when figuring out the principal amount.

Step 4: Add 1 plus the interest divided by 12
Recall the number you got from dividing the interest rate by 12 in step 2. Add 1 to this number.

Step 5: Multiply sum by itself, using number of payments as exponent
Take the sum from step 4 raised to the power of the number of months included in the term of your loan. For example, if you will make 36 monthly payments, multiply the sum from step 4 by itself 36 times.

Step 6: Calculate 1 divided by this sum
Calculate 1 divided by the result from step of your multiplication.

Tip
Round this number to the nearest hundredths place to make it easier to work with.

Step 7: Subtract sum from 1
Subtract this number from 1. Jot this number down for use in your final calculation.

Tip
Avoid the math by using car payment calculators found on many auto dealer and bank websites.

Step 8: Divide the first number by the second
Divide the number from step 3 by the number from step 7 for your final monthly car payment. Think about whether this will fit into your monthly budget. If so, you might want to ride off in that dream car.

Did You Know?
The Smithsonian Institute has been collecting cars since 1899, and has more than 60 cars in its collection, including a 1913 Model T Ford and a 1903 Cadillac.

[mark.m]

Why would this video make somthing so simple seem so complicated,
Im glad i had watched a few videos and allready understood what the hell they are trying to teach me

[josephvallejo]

I don't want to buy a car after this lol

[JamesBond-uzdm]

Step nine, call at bankruptcy attorney.

[niteshtak]

ok..I got the scientific calculator..now what

[theadventuresoftommyandshawna]

So i watched this video and changed each of the numbers to a variable so i could create a step by step formula. Pulled this out during the negotiations and the sales people were like "uhhh ohhhh" got the general manager. Lol

[anthonythomaslogistics]

Lol.. since my calculator is a basic one.. I had to google “to the power of”… the equation still worked….

[andybrown]

step 9 completely disregard steps 1 through 8, save up and pay for the car in cash.

[dizzolve]

thanks for making this easier for everyone

[joranfaren]

Step 1: loan interest rate / 100 = a

Step 2: a / 12 = b

Step 3: b x principle amount = c

Step 4: b + 1= d

Step 5: d^(term loan) = e

Step 6: 1 / e = f *round to the nearest
Hundreds

Step 7: 1 - f = g

Step 8: c / g = your monthly payment!

[BruceLeeroy]

Thank you. Knowing the math I can work backwards from the monthly I want, and determine the total loan and down payment needed.

[FGilan]

Easier way, before buying a car, get a pre-approved loan. From that you can make a list of payment amounts per $1000 of loan, the bank or credit union will give you that. For example, a 2% loan at 60 months has a monthly payment of $17.53 per $1000. if the amount financed is $25, 500 the payment is 17.53 * 25.5 = $447

[echepr]

It worked, I did the math by myself with simples numbers and I compared it with an auto loan calculator app and got the same results.

[j.enriquez]

I don't get the same results when I use the written formula compared to the online calculator. It's always off by a few dollars. Why is that?

[henrypacheco]

step 1: auto finance calculator online. step 2: oh wait that's it

[Arif_PAK]

You can also rearrange the formula for calculating PV of ordinary annuity to solve for monthly payment given PV.

[alfredopalacios]

I just got a big headache on top of a headache, Thanks.

[sizzlnsaff]

I think I am going to get a bicycle instead...

[hubergeek]

...and so, with this simple calculation Robert Oppenheimer was able to discover nuclear fission.

[audience applause]

[normmallett]

how about, tire iron, though window drive away ?

[hirahiro]

Is APR from credit card different from Car loan?