How to Calculate Car Loan Payments?

Buying a car with the help of financing is great but it is also very important to know exactly how much you will be paying back over several months or years. Most people tend to overlook this and then end up paying more than they had originally planned.

The first thing you should know is that your car loan payment is determined by the car cost, loan term, and interest rate.


Car Cost

The cost of the car is the amount you intend to borrow to purchase a car. This can also be referred to as the loan amount or principal.


Loan Term

This is the length of time you have to repay your car loan. It is the amount of time during which you make regular monthly payments. Loan terms can either be short or long term.


Interest Rate

This is the amount of money that you need to pay on top of the principal amount that you originally borrowed. The interest rate is determined by the lender and it can either be fixed or variable.

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Written by: Pig Daddy

How to Calculate the Interest?


To calculate the interest, use the formula:

I = P × R × T, where:

I = Interest

P = Principal or Loan Amount

R = Interest Rate (expressed as a decimal)

T = Time or Loan Length

The interest on your loan is connected to your loan term. This is because the longer your loan term is, the more you’ll be paying for the total interest.

You can calculate your total loan payment by adding together your car cost and the total interest.


Monthly Interest

You can find out how much interest you have to pay monthly using a car loan calculator. There is, however, a standard way to calculate your monthly interest. Simply divide your interest rate (expressed as a decimal) by 12 and then multiply the result by the loan amount.

Monthly Interest = (Interest Rate ÷ 12) × Loan Amount


Use a Car Loan Payment Calculator


You can save yourself some stress by using a car loan payment calculator. There are several car loan calculators online and they are pretty easy to use. You simply need to input certain details such as the vehicle cost, loan term, interest rate, and down payment. The calculator will automatically display your result. You can calculate your total and monthly interest, as well as, your total and monthly payments using an auto loan calculator. You can try out different scenarios to determine the loan that you can afford.

Check out the following car loan calculators from some of the most popular auto car loan providers in Canada.

Frequently asked questions

Is it necessary to know how a car loan payment is computed?

Having an idea of how to calculate your car loan payment keeps you within your financial limit and also saves you money. It helps you plan your monthly budget to avoid any unpleasant surprises.

How to calculate monthly car loan payments?

Your monthly car loan payment is the amount you will pay every month for the duration of your loan term. To calculate your monthly loan payments, add your total loan amount and interest amount and divide the result by your loan term.

Let’s say you have a $60,000, 72-month loan with an interest of $4,000. The calculation will be:

($60,000 + $4,000) ÷ 72 = $888.89

Your monthly payment in this scenario is $888.89.

How else can you lessen your monthly car loan payment?

There are some ways in which you can lessen your monthly car loan payment. One of the most effective way is to pay off your loan as soon as possible. It will reduce the interest you’ll be paying too. Another way is to reduce your loan amount. The more you reduce your loan amount, the lower your monthly payment will be. Last but not least, you can increase your down payment.

Why do interest rates differ?

Interest rates differ based on several factors, such as, your credit score, debt-to-income (DTI) ratio, loan type, loan term, and, Federal Reserve interest rates.

Why use an online car loan calculator?

Online car loan calculators are free of charge. You can use them to compare different loan types, compare your current car loan with a loan that has a better interest rate, or calculate the monthly payments for different loan terms.



Understanding how to calculate your car loan is very important when you’re looking to get a car; either new or used. It aids your decision-making process and also helps you formulate smart loan payment plans.

Pig Daddy

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