Home
Back
Car Loan Payment Formula:
| From: | To: |
The car loan payment formula calculates the fixed monthly payment required to pay off a car loan over a specified term, including principal and interest. The formula accounts for compound interest and can be adjusted for extra principal payments.
The calculator uses the standard loan payment formula:
Where:
Explanation: The formula calculates the amortizing payment that would pay off the loan in exactly the term length, then adds any extra principal payment.
Details: Making extra principal payments reduces total interest paid and can shorten the loan term significantly. Even small extra payments can save hundreds or thousands in interest over the life of the loan.
Tips: Enter the loan amount, annual interest rate (as a percentage), loan term in months, and any additional monthly principal payment you plan to make. All values must be positive numbers.
Q1: How much can I save with extra payments?
A: Even $50 extra per month on a $25,000 loan at 5% for 60 months would save $408 in interest and pay off the loan 4 months early.
Q2: Should I pay extra or invest the money?
A: Compare the loan interest rate to potential investment returns. Paying extra is a guaranteed return equal to your loan rate.
Q3: Are there prepayment penalties?
A: Most auto loans don't have prepayment penalties, but check your loan agreement to be sure.
Q4: How does the interest rate affect payments?
A: Higher rates increase both monthly payments and total interest paid. A 1% rate difference on a $30,000 loan adds about $15/month and $900 total interest over 5 years.
Q5: What's better - shorter term or extra payments?
A: Shorter terms usually have lower rates but higher required payments. Extra payments on a longer term loan give more flexibility.