1. What is the Car Loan Payment Formula?

The car loan payment formula calculates the fixed monthly payment required to fully repay a car loan over its term, including both principal and interest. This is known as the amortization formula.

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)
• \( n \) — Total number of payments (loan term in years × 12)

Explanation: The formula accounts for compound interest over the life of the loan, ensuring each payment covers both principal and interest.

3. Understanding Loan Payments

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

4. Using the Calculator

Tips: Enter the total loan amount, annual interest rate (APR), and loan term in years. The calculator will show your estimated monthly payment, total repayment amount, and total interest paid.

5. Frequently Asked Questions (FAQ)

Q1: What's a good interest rate for a car loan?
A: Rates vary by credit score, but generally 3-5% is excellent, 6-8% is good, and above 10% is poor as of 2023.

Q2: How does loan term affect payments?
A: Longer terms mean lower monthly payments but higher total interest paid. Shorter terms have higher payments but lower total cost.

Q3: Should I make a down payment?
A: A down payment of 20% or more is recommended to avoid being "upside down" on your loan (owing more than the car is worth).

Q4: What's the difference between APR and interest rate?
A: APR includes both interest rate and any loan fees, giving a more complete picture of the loan's cost.

Q5: Can I pay off my loan early?
A: Most loans allow early payoff, but check for prepayment penalties which could reduce savings from early repayment.