Overhaulin'

Calculating a car payment?

Is this the correct way to calculate a car payment? For ex. Interest = Loan Amt x IntRate x Duration $12,000 x .130 x 5yrs = $7800.00 (total interest) $7800(int) + $12,000(loan) = $19,800 (total paid) $19,800/60(num mths fin) = $330.00 Monthly car pymt If not please let me know what i'm doing incorrectly...thanks...I've used the pymt calculators online but i want to know what the fomular is...thx

Public Comments

1. Yes thats correct, for a 13% interest rate and a 5 year term.
2. if it is simple interest you are correct, but if the interest is compound interest (which is more likely for credit companies), it is: FV = PV(1+i)^n where FV: future value (of loan amt) PV: present value (loan amt) i= interest rate n= number of periods for the interest (if it is yearly or monthly) for example in this case if the compound interest rate is yearly: FV= $12,000(1.13)^5 FV= $22,109.22 -> this is probably the amt you have to pay so FV/60months= $368.487 monthly
3. nope. The interest is based on the principle owed at the time of payment. The interest amount changes as the balance drops. principle balance * (rate/12) = interest due. Subtract interest due from payment. Substract payment from balance. Recalculate for the next month. The principle is steadily dropping so the interest varies each month.