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How to Calculate a Car Loan

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Taking out a car loan is a huge financial responsibility that you must be prepared to take. You have to ensure that you can afford the total cost of the loan and efficiently manage the repayments. Otherwise, you would struggle with the monthly obligation and may end up making frequent late repayments or eventually defaulting on your loan. These actions deeply affect your credit score, which in turn would make future financing difficult to obtain.

To have a good estimate of the total cost of your car loan and determine how much you can afford, you need to calculate the finance charges by factoring in the loan’s principal, down payment, interest rate, term, repayment frequency, and balloon payment when calculating your car loan. Most car loan formulas do not factor in the associated loan fees including the prepayment penalty if there’s any. Although not accurate, these calculations still provide a good estimate of how much your total car financing would cost.

Car loan charges can be computed manually or conveniently using online calculators.

Manual Car Loan Calculation

The formulas differ according to the type of your car loan.

Amortizing Loans: Loan Payment (P) = Amount (A) / Discount Factor (D)

To solve the equation, you’ll need to find the numbers for these values:

  • A = Total loan amount
  • D = {[(1 + r)n] - 1} / [r(1 + r)n]
  • Periodic Interest Rate (r) = Annual rate (converted to decimal figure) divided by number of payment periods
  • Number of Periodic Payments (n) = Payments per year multiplied by the number of years

Interest-only Loan: Loan Payment = Loan Balance x (annual interest rate/12)

An interest-only loan will have a lower monthly payment if you’re on a tight budget for the time being, but you will owe the full principal amount at some point.

Calculating the Monthly Repayments

You can get an estimate of your monthly car loan repayment using the following formula:

Car Loan Repayment Formula

To get the "principal times the interest rate due per payment":

  1. Divide the APR by 100 to convert it into a decimal.
  2. Divide the resulting number by 12 to get the monthly percentage rate as a decimal.
  3. Then, multiply the principal by the monthly percentage rate.

To get the other half of the equation:

  1. Enter 1 + the interest rate due per payment
  2. Hit the button x^y on your scientific calculator then enter the number of repayments.
  3. Subtract the figure obtained from 1.

Your monthly repayment amount is obtained by dividing the first figure obtained by the second figure.

Getting the Total Finance Charges

Simply multiply your monthly payment amount by the number of payments, minus the amount borrowed to calculate your total finance charges over your loan term.

Simply multiply your monthly payment amount by the number of payments, minus the amount borrowed to calculate your total finance charges over your loan term.

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Hate Manual? Use Online Loan Calculators

There are a lot of online car loan calculators on the web that you can use free of charge. Aside from saving you the hassle of manual calculation, you can also easily compare offers from the various financing companies.

Online car loan calculators also differ according to what you want to compute. The common types include:

  • Auto Payment Terms Calculator
  • Monthly Car Payment Calculator
  • Lease vs. Buy Calculator
  • Car Lease Calculator
  • Car Cost Calculator
  • Car Rebate vs. Financing Calculator
  • Auto Loan vs. Home Equity Calculator

To use an online car loan calculator, simply fill out the information needed, such as:

  • Vehicle’s Purchasing Price
  • Loan Term
  • Deposit or Balloon Payment
  • Repayment Frequency (Weekly, Fortnightly or Monthly)

Other information that may be required include:

  • Interest Rate
  • Trade-In Value
  • Rebate Amount
  • Sales Tax

A good online car loan calculator should give you an estimate of your total loan payment, total interest costs and monthly repayment amount. Are the results higher than your budget allows? You reduce your monthly payments by either trading in your old car, buying a less expensive car, or by simply increasing your down payment.



It’s important to figure out what that payment will be before you take out a loan. Whether you’re a math whiz or slept through Algebra I, it’s good to have at least a basic idea of how your loan repayment will be calculated. Doing so will ensure that you don’t take out a loan you won’t be able to afford on a month-to-month basis.

Once you know how to calculate your monthly number, it becomes easier to determine which type of car finance plan works best for your situation and create a game plan for paying off your loan.

Quick Car Loan Calculators

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