1. What is the Car Loan Payment Formula?

The car loan payment formula calculates the fixed monthly payment (PMT) required to repay a loan over a specified term. It accounts for the principal amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of monthly payments (loan term in months)

Explanation: The formula accounts for compound interest over the life of the loan, calculating a fixed payment that covers both principal and interest.

3. Understanding Loan Payments

Details: Each payment consists of both principal (the original loan amount) and interest (the cost of borrowing). Early payments are mostly interest, while later payments apply more to principal.

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate (not APR), and loan term in months. For example, a 5-year loan would be 60 months.

5. Frequently Asked Questions (FAQ)

Q1: How does loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid. Shorter terms have higher payments but lower total interest.

Q2: What's the difference between interest rate and APR?
A: APR includes fees and other loan costs, while the interest rate is just the cost of borrowing the principal.

Q3: Are there prepayment penalties?
A: Some loans charge fees for paying off early. Check your loan terms before making extra payments.

Q4: How does a down payment affect the loan?
A: A larger down payment reduces the principal amount borrowed, which lowers both monthly payments and total interest.

Q5: What about taxes and insurance?
A: This calculator shows principal and interest only. Actual payments may include property taxes, insurance, and other fees.