1. What is the Auto Loan Payment Formula?

The auto loan payment formula calculates the fixed monthly payment required to repay a loan over a specified term, including interest. It's based on the time value of money principle.

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 repayment and interest charges, with more interest paid early in the loan term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing.

4. Using the Calculator

Tips: Enter the loan amount, annual interest rate, and loan term in months. For a 5-year loan, enter 60 months. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Why does most of my early payment go toward interest?
A: This is due to amortization - interest is calculated on the outstanding balance, which is highest at the start of the loan.

Q2: How can I reduce my total interest paid?
A: Make larger down payments, choose shorter loan terms, or secure a lower interest rate.

Q3: What's the difference between APR and interest rate?
A: APR includes both interest rate and loan fees, giving a more complete picture of borrowing costs.

Q4: Are there prepayment penalties?
A: Some loans charge fees for early payoff. Check your loan agreement before making extra payments.

Q5: Should I choose a longer term for lower payments?
A: While longer terms reduce monthly payments, they significantly increase total interest paid over the life of the loan.