🚗 Thinking about buying a car? Whether it’s brand new or gently used, knowing your monthly car payment is key to staying on budget. Luckily, calculating it is easier than you think — and we’re here to help! 😊
Let’s walk through it step-by-step.
Table of Contents
💡 What Goes Into a Car Payment?
Your monthly car payment depends on a few key things:
- Loan amount (principal) – the price of the car minus your down payment and trade-in
- Loan term – how many months you’ll take to repay it
- Interest rate – how much extra you pay to borrow the money
- Sales tax and fees – sometimes included in the loan total
🧮 Car Payment Formula
Here’s the standard formula for calculating car payments:
Car Payment = [P × r × (1 + r)ⁿ] ÷ [(1 + r)ⁿ – 1]Where:
- P = Loan amount
- r = Monthly interest rate (annual rate ÷ 12 ÷ 100)
- n = Loan term in months
Don’t worry — we’ll break this down with an example!
✅ Example
Let’s say:
- Car price: $25,000
- Down payment: $5,000
- Loan amount: $20,000
- Interest rate: 6% annually
- Loan term: 60 months (5 years)
Step 1: Convert the interest rate to monthly
6% ÷ 12 ÷ 100 = 0.005 (monthly rate)Step 2: Plug into the formula
Payment = [20000 × 0.005 × (1 + 0.005)⁶⁰] ÷ [(1 + 0.005)⁶⁰ – 1]That comes out to about $387 per month
⚙️ Car Loan Payments Calculator
Enter
- Loan amount (principal)
- Loan term
- Interest rate
- Sales tax and fees
The tool will calculate monthly car payments
🚨 Don’t Forget These!
- Sales tax may be added to your loan
- Car insurance is not included in this payment
- Fees or add-ons like warranties can raise your loan total
💰 Bonus Tip: Lower Your Payment
Want to reduce your monthly payment? You can:
- Make a bigger down payment
- Get a lower interest rate
- Choose a longer loan term (but you’ll pay more in interest!)