Q:

What is a good car loan repayment formula?

A:

Quick Answer

A good car loan repayment formula is [P(r/12)]/[1-(1+r/12)^-m], in which P is the principal, r is the interest rate, and m is the number of monthly payments. Using this formula, a $10,000 auto loan at an interest rate of 5 percent over 36 months equals a monthly payment of $299.71.

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Full Answer

If you want to calculate car payments without using a scientific calculator or formula, it is possible to use an online auto loan calculator. BankRate provides a free calculator so that potential car buyers can easily plan ahead for car payments.

According to BankRate, the average interest rate for a 36 month new car loan is 4.25 percent, as of 2015. Using the price of the car you're hoping to buy, subtract the down payment amount that you can make, and plug that number in for the loan amount. Next, estimate the interest rate at 4.25 percent, but realize that if you have better- or worse-than-average credit, the rate may be different. Interest can change over time, so know the latest rates.

A lower number of monthly payments equates to a higher monthly payment amount, but the interest rate is then typically lower. Decide whether you wish to pay it off quickly but with high monthly payments, or pay it off slowly with lower monthly payments. The calculator does the work for you, providing the final options for budgeting your vehicle payments.

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