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Car Loan Payment Formula:
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The car loan payment formula calculates the fixed monthly payment required to pay off a car loan over a specified term. It accounts for the principal amount, interest rate, and loan duration.
The calculator uses the standard amortization formula:
Where:
Explanation: The formula calculates the fixed payment that covers both principal and interest each month, resulting in the loan being paid off exactly by the end of the term.
Principal: The amount borrowed to purchase the vehicle.
Interest Rate: The annual percentage rate (APR) charged by the lender.
Loan Term: The duration over which the loan will be repaid (typically 36-72 months).
Monthly Payment: The fixed amount paid each month until the loan is repaid.
Tips: Enter the total loan amount (after any down payment), the annual interest rate (APR), and the loan term in months. All values must be positive numbers.
Q1: How does a longer loan term affect payments?
A: Longer terms reduce monthly payments but increase total interest paid over the life of the loan.
Q2: What's the difference between APR and interest rate?
A: APR includes both the interest rate and any additional loan fees, providing a more complete cost picture.
Q3: How can I reduce my total interest paid?
A: Make a larger down payment, choose a shorter loan term, or secure a lower interest rate.
Q4: Should I include taxes and fees in the loan amount?
A: Only include them if you're financing those costs - otherwise use just the vehicle purchase price minus down payment.
Q5: How accurate is this calculator?
A: It provides standard amortization results; actual loan terms may vary slightly based on lender-specific calculations.