The factors that will impact your monthly auto loan payment will be the price of the vehicle, your down payment, the interest rate, and the length of the loan. Your interest rate will vary based on your credit score. If you purchase a used car, you could expect your interest rate to be higher than on a new car. Many people use car loan calculators to get a feel for what their monthly payments could be like.

Calculating an Auto Loan Payment

When you calculate an auto loan payment, the first thing you need to calculate is the cost of the vehicle. If you are going to make a down payment or if you are going to do a trade-in, you want to subtract the value of the trade-in or the amount of the down payment from the cost of the vehicle to determine the loan amount.

Next, look at the term of the loan. This is the amount of time you have to repay the money to the lender. Generally, the longer the term, the less you pay every month. However, the longer the term, the more overall interest you will pay. If you have a short-term loan, your monthly payments are high, but the amount of interest you pay will be lower.

Finally, determine if the vehicle will be new or used. You can expect to pay a couple of percentage points more in interest for a used vehicle than you would pay for a new vehicle.

A Breakdown of What You Will Pay Every Month

Once you factor in the price of the loan, term of the loan, and interest rate, you can determine how much you will be paying for your vehicle. The total monthly payment is the amount that you are going to pay every month for the life of the loan. A portion of the monthly payment covers the amount you borrowed. The rest goes to covering interest.

Total principal paid is the amount of money you are borrowing to buy the car. If you purchase a car for $20,000, the total principal is $20,000. Interest is what you are paying the lending company for them to lend you money.

You can determine the interest by taking the interest rate, dividing it by 12 months, and then multiplying that number by the loan balance. For example, if you have a $30,000 balance and a six percent interest rate, you take 0.06, divide that by 12, which equals 0.005, multiply that by $30,000, and get a monthly interest of $150.

To calculate your monthly car payment in your head, divide the total loan and interest amount by the loan term. If your loan is for $30,000, the term is 60 months, and interest is four percent or $3150, the math would be $30,000 (principal) + $3,150 (interest) ÷ 60 (term of the loan) = $552.50 (your total monthly payment).

You want your car payment to be something you can reasonably afford. Take the time to consider the principal and the interest when calculating how much car you can really afford.

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