February 25, 2019

# How to calculate financial costs on a new car loan

There are many people who want to buy a new car, but probably don’t know if the car is within their capabilities. Before you act impulsively or be tempted, consider all the financial information. Although the suggestion of monthly payments is a good option to start your analysis, you should also consider the financial cost (interest) you pay during the loan period. The interest is the real cost for the money you lend for the duration of the loan.

## Method 1

Calculate the monthly payment of a car loan

### 1 Investigate the interest rates you can offer to get a car loan and choose one that fits your financial situation. Interest rates vary according to many factors, such as your credit history, the borrower institution, the promotions that may exist, or the size of the total payment.

It’s important that you know your own credit history, as a borrower uses it to determine the interest rate. You can request your history from institutions such as the credit bureau for free once a year (depending on the country).

### 2 Decide which loan term is best for your budget. The terms of the loans vary between 1 and 6 years. The borrower must determine the term of the loan and you decide whether to take it or not.

You will pay lower interest rates on the loan if the term is shorter, but you will need to make larger monthly payments.

### 3 Find out the exact amount you are going to borrow. The final loan amount is the purchase price less the value of the advance (installment) if it exists.

### 4 Calculate (or charge) the suggested monthly payment with the payment variables and an online calculator. Some calculators require the number of months or the number of years to give you the monthly payment. Give yourself the task to confirm the type of term that the website should accurately determine the monthly payment for the car loan.

For example, the monthly payment of a loan per vehicle of 255,000 with an interest rate of 6 percent and the loan term is 4 years (48 months) will be 5,988,70.

## Method 2

Calculate the interest on a loan for a car.

### 1 Multiply the monthly payment loan by the number of payments you will make over the loan. This gives you the total cost of the car, including interest. The total cost of the car is equal to the monthly payment multiplied by the number of payments while the loan lasts. If you make a monthly payment of 5,988.70 and a 48-month term, the total cost is equal to \$ 287,457.60.

### 2 Calculate the interest to be paid by subtracting the original loan amount from the total cost of the car. The difference that is made is the interest you will pay during the loan. If the purchase price was \$ 255,000 and the total cost of the car was \$ 287,457.60, then the difference would be the interest paid on the loan. That’s \$ 32,457.60.

## tips

• If you have an excellent credit and do not want to make an advance (prepayment), the final loan is the vehicle equal to the purchase price.
• Lenders calculate interest based on the balance that comes from the car loan. The more payments you make, the less you pay for interest.
• Loans for a vehicle usually include the interest in your monthly payment.