When you decide to purchase a car, it is important for you to determine the monthly car loan payments. You only need to review the loan’s terms and conditions and you would be able to calculate the payments by using different techniques. As soon as you have calculated the amount for the monthly payments you can conveniently incorporate this into your monthly budget to determine if it is affordable or not. In case the payment is expensive, you might need to look for a more affordable car.
In order to calculate the monthly payments of your car loan, you need to do the following steps.
Step 1: Know the terms and conditions of your loan
The first thing you should do before you can calculate the monthly payments involved in your car loan is to check the terms and conditions indicated on the loan contract. By doing this, you would determine the loan term, the loaned amount, and the interest rate. As soon as you determined the figures involved in the loan, you can calculate this using a financial calculator.
Step 2: Calculate the loan payments using the financial calculator
After reading the terms and conditions of your car loan, take note of the figures such as the principal amount, the loan term, and the interest rate involved. You can use these figures in calculating the monthly payments with the help of a financial calculator.
For example, you purchased a car for $20,000 with an interest rate of 6 percent for six years. Key-in the $20,000 into the financial calculator. After doing this press the button marked as PV and enter six, which stands for the interest rate. Upon getting the result, divide this by 12 and you would probably get 0.05 as the result. Press the i% key and type in a six. The six represents the loan’s term in the calculator’s display. Multiply this by 12 in order to get the payments for 72 months. After this, press the “N” key and hit the compute key followed by the PMT key. This would probably give you a payment amount of about $331.46.
Step 3: Check the results
Check the results you obtained using an automobile loan calculator. This tool is usually found in most websites used to review the payments involved in car financing. Review the results you obtained earlier by entering the loaned amount, the term of the loan, and the loan’s interest rate. After doing this press the calculate key and wait for the monthly payment to be calculated. Compare the result of the first and the second method and these should be the same.