Car Loan Calculator
Calculating the interest on your car loan is an essential challenge most of us face. The Car Loan Interest calculator helps make sure you know how much you are being charged – and how much you are having to pay the dealership! Using it will help you save money and compare different offers.
So how do you do it?
How to calculate interest on a car loan
There are three core steps.
| # | Step |
|---|---|
| 1 | Use the monthly payment calculation formula to calculate the amount you will pay monthly to service your loan |
| 2 | Take that amount and multiply it by the number of months of the term of the loan. This will give you your total interest payment across the loan period. |
| 3 | Subtract that overall amount from the total amount you are repaying and this will giver you the total interest |
Tip: remember that when we calculate we need to have the rate in the formula in its decimal form.
It looks tricky, but it all makes sense!
Formula:
principal * \cfrac{(rate/12)}{(1 - (1 + rate/12) ^ -months)}Let’s look at this example.
Here’s what a car loan of $15000 taken out for 48 months at 5% looks like.
Step 1: calculating the monthly payment
15000 * \cfrac{(0.05/12)}{(1 - (1 + 0.05/12) ^ -48)}15000 * \cfrac{(0.004)}{(1 - (1.004) ^ -48)}15000 * \cfrac{(0.004)}{(1 - 0.825)}\cfrac{(60)}{(0.175)}= 342.8
You will therefore pay $342.80 a month. This is your monthly payment figure for that $15000 car loan to be repaid at the rate of 5% interest across that term of 48 months. Obviously, if you change the term or the interest rate you will have a different monthly payment.
Step 2: calculating the overall amount to be repaid.
Now you have your monthly payment you need to calculate the overall total repayment amount across the 48 months. To do this, multiply your monthly payment by 48.
\$342.80 * 48 = \$16454.40
Step 3: calculating the overall interest
This is simple. Deduct the Principal loan amount of $15000 from the overall payment you will make across the term of the loan.
16454.40 - 15000 = 1454.40
You will therefore pay $1454.40 in interest on this example car loan.
How does the calculator work?
The benefit of this car loan interest calculator is to give you reassurance over an important element of your monthly outgoings. Using it will mean you get a good deal for your wallet and you can compare the market options to your best advantage. It works by giving you the following essential information and calculations.
| Information Provided |
|---|
| All the costs of purchasing a car on credit |
| A monthly breakdown of interest and capital repayment payments |
| An overall interest amount across the term of the loan |
| It also enables you to see your loan progress over time – what we call the ‘amortization schedule’. (Look elsewhere on the site for other amortization calculators that help you explore amortization costs for other types of loan too.) This helps you track how much interest and capital you still have to settle. |
All this can be incredibly important information to enable you to keep control of your finances. It also helps you see the benefit or drawback to changing your car again before the full loan term is up. Using the car loan interest calculator will help ensure you are well armed with information when you talk with the sales team!
Car Loans and other standard loans
Most of us need a loan to buy a car. Some of us may buy outright to avoid any interest payments, but for many of us a loan is the only way to attain a good car.
Even if you are in a position to buy your car outright, use the calculator to check how much interest a deal might charge you. You may find that in a very good deal you actually pay very little interest and that it is therefore not a bad thing to take out the loan. This is especially so if there are other ways you might invest the lump sum you were going to spend on the car.
Whether you are leasing the car, buying the car outright over a period of time, or paying a monthly payment across a shorter period of time, for example two years, and then following up with a lump sum ‘balloon payment’ to own the car outright, use the car loan interest calculator. It will be invaluable in helping you determine the best option.
Check out our other loan calculators on the site too. Not all loans use the same calculation formula, so play around and see what sort of loan would be best. Often the dealer loans and financing are not the most competitive way to go, so check other options.