1. What is the Car Payment Formula?

The car payment formula calculates your fixed monthly payment for an amortizing auto loan. It accounts for the principal amount, interest rate, and loan term to determine what you'll pay each month.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula accounts for both principal and interest payments over the life of the loan, with more interest paid earlier in the loan term.

3. Understanding Your Car Payment

Details: Your monthly payment is determined by three key factors: the amount you borrow, the interest rate, and the length of the loan. Longer terms mean lower monthly payments but more interest paid overall.

4. Using the Calculator

Tips: Enter the total loan amount (after any down payment), the annual interest rate (APR), and the loan term in months (e.g., 60 for 5 years). All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Should I include my down payment in the loan amount?
A: No, the loan amount should be the amount you're financing after any down payment or trade-in value.

Q2: How does loan term affect total cost?
A: Longer terms reduce monthly payments but increase total interest paid. A 60-month loan at 5% will cost less overall than a 72-month loan at the same rate.

Q3: What's a good interest rate for a car loan?
A: Rates vary by credit score, but as of 2023, rates below 5% are excellent, 5-7% are good, and above 7% may indicate room for improvement.

Q4: Are there other costs not included here?
A: Yes, this calculates principal and interest only. Your actual payment may include insurance, taxes, and fees.

Q5: Should I make a larger down payment?
A: Generally yes - larger down payments reduce the loan amount and may qualify you for better rates, saving money long-term.