How To Calculate Car Payment With Interest


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How to calculate car loan payment

If youve learned anything today, we hope its that its important to weigh all factors when buying a vehicle, either new or used. Our car financing calculator will be a great tool to help you plan your next vehicle purchase.

It can help determine how much money you want to put down . Based on how much your trade-in value is, it can be a great help when deciding what kind of term you want to choose. Note: some interest rates are term-specific, so even if your credit history says you can get 1.99% interest, for example, you may have to choose a certain term length in order to qualify for that interest rate.

How Is Interest Calculated On A Car Loan

An auto loan calculator shows the total amount of interest you’ll pay over the life of a loan. If the calculator offers an amortization schedule, you can see how much interest you’ll pay each month. With most car loans, part of each payment goes toward the principal , and part goes toward interest.

The interest you pay each month is based on the loan’s then-current balance. So, in the early days of the loan, when the balance is higher, you pay more interest. As you pay down the balance over time, the interest portion of the monthly payments gets smaller.

You can use the car loan calculator to determine how much interest you owe, or you can do it yourself if you’re up for a little math. Here’s the standard formula to calculate your monthly car loan interest by hand:

Monthly interest


Use An Auto Loan Calculator

You can take this a step further using an auto loan calculator. These calculators allow you to find the monthly payment with different interest rates and loan terms. The Bankrate auto loan calculator will also provide a full amortization schedule so you can see the amount of interest youre paying each month and the total interest paid over the life of the loan.

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What Is A Good Apr For A Car Loan

A good APR for a car loan is around 3.24%, based on Q2 2020 information from credit bureau Experian. Most people arent paying that little, though. The average APR for a new car in June 2020 was 4.93%. For a used car, it was 9.25%.

One of the biggest factors in determining your APR is your credit score. Heres what average rates looked like on new car loans in Q2 2020, by credit score:

Other factors also play into your interest rate, such as:

  • Your lender: Some lenders simply charge more than others.
  • Your term length: The longer your term length, the higher your interest rate .
  • Used vs. new car: Loans used to buy new cars tend to carry lower interest rates than those on loans used to buy used cars.

Whats The Average Interest Rate On A Car Loan

Calculate Total Car Payment With Interest

According to the Federal Reserve, in the first quarter of 2021, the average auto loan rate on a 48-month new-car loan was 5.21%, and the average rate on a 60-month new-car loan was 4.96%.

A range of factors can affect what interest rates you might be offered, including your credit scores, the size of your down payment and the length of your loan term. Your rate may be higher or lower than average depending on your financial situation.

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Simple Interest Car Loans

Most auto loans are simple interest loans, which means that the amount of interest you pay each month is based on your loan balance on the day your payment is due. If you pay more than the minimum due, the interest you owe and your loan balance can decrease.

On a simple interest loan, interest is front-loaded and amortized. With an amortized loan, part of your monthly car payment goes to the principal, which is the amount you borrowed, and part of your payment goes to the interest charges. Because the loan is front-loaded, a larger portion of each car loan payment applies to interest at the beginning of the loan term and at the end of the term more applies to the principal balance.

For example, If you have a $25,000 car loan with a 48-month term and a 4% interest rate, youll pay an estimated $83 in interest and $481 in principal during the first month of the loan term. By the last month, youll only pay an estimated $2 in interest, and $563 will apply to the principal amount. You can use an auto loan calculator to get an estimate of your amortization schedule.

Do Not Forget About Car Insurance

Some people forget about the cost of car insurance while budgeting for a new car. It is essential to work that cost into your monthly budget. All 50 states require drivers to have some kind of auto insurance, so this step isn’t optional.

Insurance costs vary by the car you drive. If you’re considering a new car, get a new insurance quote. This quote will help you more accurately budget for your new car.

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Using Microsoft Excel To Calculate Auto Loan Payments

  • 1Use Microsoft Excel to determine the monthly payment. Fortunately, Microsoft Excel offers several handy functions that will perform complicated calculations for you.XResearch source One of those functions, the PMT function, will calculate your monthly payments based on specifics about your loan.XResearch source
  • 2Get the correct information. You’ll not only need your loan information, but you’ll also need to modify them slightly to get the correct value.
  • Multiply the length of the loan in years by 12. You want to calculate monthly payments, not annual payments, so you’ll need the total number of months throughout the life of the loan. For example, if the loan is for four years, then the number of months is 4 * 12, or 48.
  • Since you want to pay off the loan completely, the future value of the loan will be 0. This means that you won’t owe any more money at the end of the payment stream.
  • 3Create headers for your Microsoft Excel spreadsheet. Launch Excel and type these words on the first 4 rows in column A:
  • 5Use the Microsoft Excel function to calculate the payment. Input the formula “=PMT” in a cell below the numbers.
  • Type “=PMT(” and click on the cell with 7.00% so “B1” appears after the left parentheses.
  • Type “/12,” . Remember, you’re dividing by 12 because you’re calculating the interest rate on a monthly basis and the interest rate you were given is on an annual basis.
  • Type a comma after “B2” and click on the cell with 15,090 to see “B3” appear.
  • Car Loan Fees And Charges For Top 3 Banks

    Calculate the Interest Rate on a Car Loan

    Given below is a comparison of a few fees and charges levied by three selective banks:

    Name of the bank Axis Bank
    Processing fee 1% of the loan amount. The maximum and minimum amount that can be charged are Rs.5,000 and Rs.10,000, respectively. Rs.3,500 to Rs.5,500
    3% – 6% depending on amount of time completed* 5% of the principal outstanding
    Loan cancellation As mentioned by the bank Rs.2,500 per instance
    2% per month

    Note: GST rates will be applicable over and above the rates charges mentioned above.

    *HDFC Bank does not allow foreclosure within 6 months from the day the car loan was availed.

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    What Are The Most Common Term Lengths

    According to data from Experian, here is the percentage of people opting for different term lengths in Q2 of 2020:

    • 4960 months: 15.7%
    • 7384 months: 35.1%
    • 8596 months: 4.8%

    Keep in mind that just because longer-term loans are becoming more common, according to Experian, that doesnt necessarily mean theyre a good idea. There are a lot of things to consider when choosing a long-term auto loan.

    Using a car loan calculator is just one step in making a smart financing decision. Once you get a sense of how the loan works, its smart to get preapproved for an auto loan before you go to the car lot. This gives you far more negotiating power than theoretical numbers spit out by a calculator.

    Divide Total Interest By Time

    Once you have the total amount of interest you will pay off over the life of the loan, divide this number by the number of years you will be paying on the loan to determine the yearly interest payments. You can then divide this number by twelve to determine the amount of your monthly payment that will be applied to interest. An auto loan calculator available on the Internet can aid in this process, which can help you customize your payment options to fit your budget and financial schedule.

    Before you take out a loan for a new or used car, you should calculate the auto loan interest that youll end up paying on the loan. Auto loan terms can be hard to understand sometimes, if not misleading.

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    Buying New Versus Used Vehicles

    Buying new has its advantages, such as the fact that it has never been previously owned. It has that new car smell and everything about it is brand new. The engine is clean and the interior has no stains, burns or defects. However, the individual who purchases new pays a much higher price than if they had purchased the same make and model used.

    Though purchasing a used car means that there may be imperfections left behind from the previous owner, the cost of ownership is typically lower. The advantages of purchasing used include:

    There are several advantages for purchasing used instead of new. However, purchasing used does have a few disadvantages, too. For example, the vehicle typically will no longer be under any type of warranty & third party warranty services can be quite expensive. It may also have significant wear and tear on the engine and other vital drive train parts, especially if it has been used as a fleet vehicle or owned by an individual who traveled a great deal, such as a sales professional. When purchasing used, if you want to avoid expensive repair fees it is typically best to purchase something that is only two or three years old with low mileage. On average, cars clock about 12,000 miles per year. If a three year old vehicle which has over 100,000 miles on the engine is probably not a good bet.

    How to Make Sure to Buy a Quality Used Car

    How to Prevent Buying a Lemon

    Where To Get A Car Loan

    How Do You Calculate Car Loan Interest Rates

    If youre looking to take out a loan to finance your auto purchase, you have plenty of options to choose from. When it comes to financing your vehicle, you should be sure to come prepared in order to ensure that your negotiation with a car dealership is successful and you dont wind up paying more than you bargained for.

    Online rates comparison tools like can help you to learn more about what rates you qualify for. Monevo lets you compare loan offers from different lenders for free. If you see a loan that meets your needs, you can apply quickly and easily online, and have the funds available to you in as little as one business day.

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    How Much Interest Will I Pay On My Car Loan

    Our car finance calculator works out the interest that you might pay as part of your car finance plan. It does this by taking your interest rate and compounding it over the course of the loan period. It is this compounding of interest rate that forms the basis of the effective annual rate we feature in our calculator. You may be interested to note that we have a calculator for compounding interest on savings.

    How To Determine What You Can Afford

    So how much car can you afford? Owning a car has two different types of costs. The cost to purchase and the cost of maintenance and ownership.

    Lets assume that you do the math and decide that you can afford that $21,300 car with a monthly payment of $392.27 a month for 60-months.

    But before you consider the matter settled and sign the paperwork, dont forget that your car has other costs.

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    Shop Around For The Best Deal

    As with other types of loans, the overall cost of a car loan comes down to one major factor: APR. Knowing what APR each lender will charge can help you find the car loan with the lowest overall cost.

    Dont just focus on the number, though. Look at the lenders requirements and restrictions too. You can check this on the lenders website or using its quote form or application. You may also want to look at reviews.

    Remember that the interest rate listed on the main page is likely the starting rate. To get that low rate, you will likely need excellent credit of 740 or higher and a stable income.

    Go Autos Car Loan Calculator

    How to Calculate Car Payments

    Purchasing a vehicle usually requires a significant financial investment. Even a modestly priced vehiclelets say $8,000 to $10,000is more than most people can afford to pay with cash. Which means most people need to take out an auto loan in order to buy a car. But loans come with monthly payments, and it can be hard to figure out how much youre likely to pay once you factor in things like the loan term, the interest rate, the payment frequency, and the trade-in value. To be totally honest, its pretty confusing. But dont worry. Our car loan calculator can do all the hard work for you.

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    Process To Use Bankbazaars Car Loan Emi Calculator

    The step-by-step procedure to use the Car Loan EMI calculator offered by BankBazaar is mentioned below:

      1. The calculator can be found on the top of this page. The first step would be to select the loan amount.

      2. Next, select the repayment tenure.

      3. Enter the rate of interest and the processing fee.

      4. Click on Calculate. The results will be displayed immediately.

    You can check the principal amount and the interest that is being paid every year. The calculator also provides the outstanding balance at the end of every year.

    Buying A Car With Cash Instead

    Although most car purchases are made with auto loans in the U.S., there are benefits to buying a car outright with cash.

    There are a lot of benefits to paying with cash for a car purchase, but that doesn’t mean everyone should do it. Situations exist where financing with an auto loan can make more sense to a car buyer, even if they have enough saved funds to purchase the car in a single payment. For example, if a very low interest rate auto loan is offered on a car purchase and there exist other opportunities to make greater investments with the funds, it might be more worthwhile to invest the money instead to receive a higher return. Also, a car buyer striving to achieve a higher credit score can choose the financing option, and never miss a single monthly payment on their new car in order to build their scores, which aid other areas of personal finance. It is up to each individual to determine which the right decision is.

    Fixed Rate Vs Floating Rate Of Interest

    Car loans are offered at fixed as well as floating interest rates. The fixed rate will remain unchanged for the tenure of the loan but the floating rate is subject to change from time to time. The different factors that can affect interest rates include applicable taxes, liquidity, inflation, etc.

    • Fixed Rate EMI Calculation
    • Under the fixed rate EMI calculation, the EMI you have to pay towards the car loan remains unchanged throughout the loan tenure. This is so because the company offered a fixed rate of interest for the whole period.

      For example, for a car loan equal to Rs.5 lakh at 10% p.a. interest for a 3-year tenure, the interest payable will be Rs.16,134 per month. This will be the amount payable throughout the tenure of the loan.

    • Floating Rate EMI Calculation
    • Under the floating rate EMI calculation method, the EMI payable differs based on the interest rate applicable at the time. The floating rate of interest changes based on the market lending rate.

      Lets say you have taken a car loan equal to Rs.5 lakh for a 3-year tenure. The interest rate for about a year is 10% so the EMI payable, as in the example above is Rs.16,134. After completion of 1 year, you have an outstanding balance of Rs.3,36,409. The car loan interest rate at that time is then changed to 8%. So, for the rest of the tenure, the EMI payable will be Rs.15,215.

    Note that the interest rate may increase or decrease within the loan period depending on market fluctuations.

    How To Decide Between Buying And Leasing

    Car Loan Interest Rate Calculator Based On Credit Score

    To decide if you should lease or buy your next vehicle you should consider three main factors: the amount you drive, the purpose of the vehicle and how much you can afford to spend. Buying is best if you want full ownership of the vehicle and can afford a higher monthly cost. Leasing is right for you if you appreciate the flexibility in vehicle types and can stick to the mileage restriction.

    Just as with buying a vehicle, you will have a monthly payment over the life of your lease. But when it comes to buying there is light at the end of the tunnel in terms of ownership. Leasing on the other hand, unless you plan for a lease buyout, you will simply have the vehicle for a set time with no sole possession in sight.

    Leasing comes with quite a few caveats that can lead to a damaged credit report or money loss. If leasing is the right route for your needs, consider common pitfalls before signing off.

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