How to Calculate Monthly Car Payments
Knowing how to calculate your monthly car payment before visiting the dealership puts you in control of your budget. The payment depends on the loan amount, interest rate, and loan term—and understanding the math helps you compare financing offers and negotiate better terms.
The Formula
M = P × [r(1+r)ⁿ] / [(1+r)ⁿ − 1]
Where:
- M = monthly payment
- P = loan principal (car price − down payment − trade-in)
- r = monthly interest rate (annual rate ÷ 12)
- n = number of months
Step-by-Step Example
Car price: $32,000 Down payment: $5,000 Loan amount (P): $27,000 APR: 6.9% → monthly rate r = 6.9% / 12 = 0.575% = 0.00575 Term: 60 months
M = $27,000 × [0.00575 × (1.00575)⁶⁰] / [(1.00575)⁶⁰ − 1] = $27,000 × [0.00575 × 1.4133] / [1.4133 − 1] = $27,000 × 0.008126 / 0.4133 = $27,000 × 0.01966 = $530.82/month
Total Cost of Loan
Total paid: $530.82 × 60 = $31,849 Total interest: $31,849 − $27,000 = $4,849
How Term Length Affects Payment
| Term | Monthly Payment | Total Interest |
|---|---|---|
| 36 months | $831 | $2,916 |
| 48 months | $640 | $3,720 |
| 60 months | $531 | $4,849 |
| 72 months | $455 | $6,760 |
| 84 months | $401 | $9,684 |
Longer terms lower monthly payments but significantly increase total interest paid.
Use our car payment calculator to compare different loan scenarios.