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Car Loan Payment Formula:
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The car loan payment formula calculates the fixed monthly payment required to pay off a $1000 car loan over a specified term at a given interest rate. This is based on the time value of money formula for annuity payments.
The calculator uses the car loan payment formula:
Where:
Explanation: The formula accounts for both principal repayment and interest charges, with payments being equal each month (amortization).
Details: Understanding your monthly payment helps with budgeting and comparing different loan offers. It shows how interest rates and loan terms affect your payments.
Tips: Enter the monthly interest rate as a decimal (e.g., 0.005 for 0.5%) and the loan term in months. All values must be valid (rate > 0, months ≥ 1).
Q1: How do I convert APR to monthly rate?
A: Divide the annual percentage rate (APR) by 12 (months) and then by 100 to convert to decimal. For example, 6% APR = 0.06/12 = 0.005 monthly rate.
Q2: Why is the formula based on $1000?
A: This provides a standardized way to compare loan terms. For other amounts, multiply the result by your actual loan amount divided by 1000.
Q3: What's included in the monthly payment?
A: This calculates principal and interest only. Real payments may include insurance, taxes, and fees.
Q4: How does loan term affect payments?
A: Longer terms mean lower monthly payments but more total interest paid over the life of the loan.
Q5: Are there other costs to consider?
A: Yes, consider down payments, trade-in values, sales tax, registration fees, and insurance costs when budgeting.