Guide
How car payments are calculated
A fixed-rate car loan payment comes from three numbers: how much you borrow, the interest rate, and how long you have to repay. This guide walks through each one, shows the formula, and works a full example you can reproduce in the car payment calculator.
The three inputs to the formula
- Principal is the amount you actually borrow, also called the amount financed. In the simple calculator it is the vehicle price minus the down payment.
- The monthly interest rate is the APR converted to a monthly decimal: divide the APR by 100, then divide by 12. A 6% APR becomes 0.005 per month. The guide to car loan APR compares two rates on the same loan.
- The number of payments is the loan term counted in months. A 60-month term means 60 payments.
Every payment on a fixed-rate loan is the same size. Early payments are mostly interest because the balance is still large; later payments are mostly principal. The payment itself does not change.
The calculation
The fixed-rate payment formula
M = P × [r(1 + r)n] ÷ [(1 + r)n − 1]
M is the monthly payment, P is the principal, r is the monthly interest rate, and n is the number of payments. The bracketed part spreads the borrowing cost evenly so that the final payment clears the balance exactly.
What happens at 0% APR
At 0% APR the monthly rate is zero and the formula divides by zero, so it cannot be used directly. A 0% loan needs no interest math at all: divide the principal by the number of payments. Borrowing $30,000.00 over 60 months at 0% APR is $500.00 a month, and the total interest is $0.00.
How total interest is derived
Total interest is not a separate calculation. Multiply the monthly payment by the number of payments to get the total of all payments, then subtract the principal. What remains is the interest you paid for borrowing.
Step by step
Worked example
A $35,000.00 vehicle with $5,000.00 down, a 6% APR, and a 60-month term.
- Principal. $35,000.00 − $5,000.00 = $30,000.00.
- Monthly rate. 6 ÷ 100 ÷ 12 = 0.005.
- Number of payments. 60.
- Monthly payment. $30,000.00 × [0.005 × 1.00560] ÷ [1.00560 − 1] = $579.98.
- Total of payments. $579.98 × 60 = $34,799.04.
- Total interest. $34,799.04 − $30,000.00 = $4,799.04.
These are the calculator's own default values, so you can open the calculator and see the same figures. Displayed amounts are rounded to cents, so reproducing the steps by hand may differ by a few cents.
Why your real payment may differ
This is a planning estimate, not a loan offer. A lender works from the amount it actually finances and its own rounding, payment dates, and day-count conventions, so a lender quote can differ from any calculator.
The simple calculator also excludes sales tax, title and registration, dealer and documentation fees, insurance, fuel, maintenance, and optional products. When a lender finances taxes and fees, those amounts are added to the principal, which raises both the monthly payment and the total interest. To approximate that here, add the financed taxes and fees to the vehicle price before calculating.
Confirm the final figures with the seller and the lender before signing anything.