1. What is the Car Loan Payment Formula?

The car loan payment formula calculates the fixed monthly payment required to repay a car loan over a specified term. This is the standard formula used by financial institutions in Ontario, Canada.

2. How Does the Calculator Work?

The calculator uses the loan payment formula:

Where:

• \( P \) — Principal loan amount (CAD)
• \( r \) — Monthly interest rate (annual rate ÷ 12 ÷ 100)
• \( n \) — Number of monthly payments (loan term in months)
• \( PMT \) — Monthly payment amount (CAD)

Explanation: The formula accounts for compound interest over the loan term, calculating the fixed payment that will pay off both principal and interest by the end of the term.

3. Importance of Loan Payment Calculation

Details: Understanding your monthly payment helps with budgeting and ensures the loan is affordable. It also allows comparison between different loan offers.

4. Using the Calculator

Tips: Enter the total loan amount in CAD, annual interest rate (without % sign), and loan term in months (typically 24-84 months for car loans).

5. Frequently Asked Questions (FAQ)

Q1: What is a typical interest rate for car loans in Ontario?
A: Rates vary but typically range from 3% to 8% for new cars and 5% to 15% for used cars, depending on credit score.

Q2: Are there additional costs not included in this calculation?
A: Yes, this doesn't include insurance, taxes, or dealer fees. Ontario has 13% HST on vehicle purchases.

Q3: What's better - shorter term with higher payments or longer term with lower payments?
A: Shorter terms mean less total interest paid but higher monthly payments. Choose based on your budget.

Q4: Can I prepay my car loan in Ontario?
A: Most lenders allow prepayment but may charge a penalty. Check your loan agreement.

Q5: How does down payment affect the calculation?
A: Down payment reduces the principal amount (P) in the formula, lowering your monthly payments.