How to Figure Car Financing
- 1). Calculate the monthly interest rate of your auto loan by dividing the annual interest rate by 12. Express the monthly interest rate as a decimal and call it R. For example, if the annual interest rate is 9%, then R = 0.09/12 = 0.0075.
- 2). Count the number of months in the loan period, and call this number N. For example, if you take out a car loan for five years, N = 60.
- 3). Determine how much of the car's value you wish to finance, and call this value P. For example, if you take out an auto loan for $9,000, P = 9,000.
- 4). Compute the quantity M = P*R*[(1+R)^N]/[(1+R)^N - 1]. M is value of your monthly auto loan payments. (Note that in this expression, N is an exponent. Be sure to use the exponent button on your calculator, and not the multiplication button.)
For example, suppose R = 0.0075, N = 60 and P = 9,000. The monthly payment based on these values is M = (9,000)(0.0075)(1.5657)/(0.5657) = 186.82. This means you will pay $186.82 every month for 60 months.
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