How to Calculate a Car Payment
If you’re like most people who are shopping for vehicles, you want to know how much your car payment will be. Knowing how much of a bite your car will take out of your monthly budget allows you to figure out how your car loan fits in with the rest of your financial obligations.
While the math involved can be challenging for anyone who doesn’t do math very often, a good auto loan calculator can do a lot of the work for you.
Your Car Payment Includes More Than the Sticker Price of the Car
As you begin thinking about your monthly car payment, we recommend printing out a copy of this handy auto loan comparison sheet from the Consumer Financial Protection Bureau. This sheet walks you through most of the items that are factored into your payment.
Calculating your car payment requires you to know more than the sticker price of the vehicle you want to buy. You’ll want to get a total cost for the vehicle, which includes items such as:
- Price of the vehicle
- Sales taxes
- Title fees/registration fees
- Warranties purchased
- Cost to insure your new car
- Any existing auto loan amount being rolled into your new loan
Subtract Your Down Payment and Trade-In Value
Once you arrive at the overall cost of your car, then you can subtract your down payment and subtract the amount the dealer might give you on a trade-in. For example, if the overall cost of your soon-to-be-purchased car is $25,000 and you are putting $5,000 down and trading in a car worth $5,000, then you will need to get a loan for the remaining $15,000.
Doing the Math On Your Car Loan
Once you know how much you need to borrow, you’ll then need to figure out how much interest you’ll pay. The CFPB has this helpful loan calculator worksheet with examples that you may find useful.
The following is an oversimplified way to calculate interest. It won’t be exactly perfect, but it will give you a reasonable idea of how much interest you’ll pay over the term of your loan: I = P x R x T, where:
- I is the amount of interest you’ll pay
- P is the principal (the amount you borrow)
- R is the interest rate (expressed as a decimal)
- T is the term of the loan
Your “R” and “T’ must be measured in the same time interval. So if your lender gives you an annual interest rate, then your T must be entered in years, not months.
Continue using our example above, where you borrow $15,000. Let’s say you get a 5-year loan from UTF with an annual interest rate of 2.49%. You would calculate interest as follows: $15,000 x .0249 x 5 = $1,867.50. This is the amount of interest you would pay over the life of your loan.
To calculate your monthly payment, add the interest to your loan amount, then divide by your loan term (in months): $15,000 + $1,867.50 = $16,867.50. Divide that number by 60 months and you get a monthly payment of $281.13.
Skip the Math, Use Our Calculator
Skip the hassle of formulas and use the UTF car loan calculator. Just plug in the numbers and let it do the work.
Ready to Apply for a Car Loan From UTF?
United Teletech Financial offers auto loans at lower rates than you’re likely to find at the bank. As a credit union, we are a non-profit institution focused on helping people, not maximizing profits.