Calculating the car loan repayment is important before going out to shop for a brand new or used car. By doing this, you would increase the chances of getting the best deal from everything that is offered by dealerships. In addition to this, calculating the repayment amounts of the loan would allow you to determine that payment that you need to pay for each month. You can the principles of amortization and the basic algebraic formula in calculating the repayments. To make the calculation easier, you can use the steps given below.
1. To calculate the repayment for a car loan you can use this formula:
P x (i / 12)) / (1 – (1 + i / 12)-m)
This is consist of (P) which is the principal amount, (i) for the interest rate, and (m) for the number of monthly payments.
2. Start calculating by replacing the letters with the actual amount involved on the loan. For example, you obtained a loan of $15,000 with an 6% annual interest for 36 months , the formula would look like:
($15,000 x (6% / 12)) / (1 – (1 + 6% / 12)-36)
3. Try to calculate the monthly repayment of your loan using a scientific calculator using the formula in Step number 2. The answer would be ($15,000 x (6% / 12)) / (1 – (1 + 6% / 12)-36) = $463.15. This amount is free of taxes and fees, with no down payment.
4. Calculate the total amount that you would be paying on the entire term of financing. This can be accomplished by using the total monthly payment and multiply it with the number of months financed. Using the example on the 3rd Step, the total purchase and loan repayment would be:
$463.15 x 36 = $16.673.40
5. In order to figure out the total interest that you paid for the loan, you need to subtract the amount of principal from the loan’s total repayment. Using the example on the first steps the calculation should look like:
$16, 673.40 – $15,000.00 = $1,673.40