1. What is the Car Loan Payment Formula?

The car loan payment formula calculates the fixed monthly payment required to pay off a car loan over a specified term, including interest. The formula accounts for compound interest over the life of the loan.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

• \( PMT \) — Monthly payment
• \( P \) — Principal loan amount (USD)
• \( r \) — Monthly interest rate (annual rate ÷ 12)
• \( n \) — Number of months in loan term

Extra Payments: The calculator also shows how additional monthly payments directly reduce principal, saving interest and shortening loan term.

3. Importance of Extra Payments

Details: Even small extra payments can significantly reduce total interest paid and shorten loan duration, as they directly reduce principal balance.

4. Using the Calculator

Tips: Enter loan amount in USD, annual interest rate (typically 5-7%), loan term in years, and optional extra monthly payment. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How much can I save with extra payments?
A: Savings depend on loan size, rate, and term. Even $50 extra per month can save thousands over a 5-year loan.

Q2: Should I pay extra or invest instead?
A: Compare loan interest rate to expected investment returns. Paying off high-interest debt usually provides better guaranteed returns.

Q3: Are there prepayment penalties?
A: Most auto loans don't have prepayment penalties, but check your loan agreement to be sure.

Q4: How do extra payments affect amortization?
A: Extra payments accelerate principal reduction, causing each subsequent payment to have a higher principal/lower interest split.

Q5: Is it better to shorten term or make extra payments?
A: Extra payments provide flexibility (you can stop if needed) while shorter terms usually have lower rates but require higher mandatory payments.