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How to Calculate Car Payments

You've just seen the car of your dreams, but you're not sure if the price is right. In a few steps, you can calculate your potential car payments and decide if you'll be able to afford a new ride.

Instructions

  • Step 1: Convert the interest rate percentage to a decimal Convert your loan's interest rate to a decimal number by dropping the percent sign and dividing the number by 100.
  • Step 2: Divide decimal number by 12 Divide the interest rate on your car loan by 12. Write this number on a piece of paper.
  • Step 3: Multiply by your car loan principal Multiply the number by the loan's principal amount -- the total amount of your car loan. Write this number down, as it will be used in your final calculation.
  • TIP: Remember to subtract any down payment you might make from the new car's purchase price when figuring out the principal amount.
  • Step 4: Add 1 plus the interest divided by 12 Recall the number you got from dividing the interest rate by 12 in step 2. Add 1 to this number.
  • Step 5: Multiply sum by itself, using number of payments as exponent Take the sum from step 4 raised to the power of the number of months included in the term of your loan. For example, if you will make 36 monthly payments, multiply the sum from step 4 by itself 36 times.
  • Step 6: Calculate 1 divided by this sum Calculate 1 divided by the result from step of your multiplication.
  • TIP: Round this number to the nearest hundredths place to make it easier to work with.
  • Step 7: Subtract sum from 1 Subtract this number from 1. Jot this number down for use in your final calculation.
  • TIP: Avoid the math by using car payment calculators found on many auto dealer and bank websites.
  • Step 8: Divide the first number by the second Divide the number from step 3 by the number from step 7 for your final monthly car payment. Think about whether this will fit into your monthly budget. If so, you might want to ride off in that dream car.
  • FACT: The Smithsonian Institute has been collecting cars since 1899, and has more than 60 cars in its collection, including a 1913 Model T Ford and a 1903 Cadillac.

You Will Need

  • Scientific calculator
  • Pen and paper
  • Online payment calculator (optional)

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