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. It accounts for the principal amount, interest rate, and loan duration.

2. How Does the Calculator Work?

The calculator uses the standard loan payment formula:

Where:

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

Explanation: The formula calculates the fixed payment that pays off the loan exactly by the end of the term, with each payment covering both interest and principal.

3. Importance of Loan Calculation

Details: Understanding your monthly payment helps with budgeting and comparing loan offers. It also shows the true cost of borrowing through total interest calculations.

4. Using the Calculator

Tips: Enter the principal amount in CAD, annual interest rate as a percentage (e.g., 5.99 for 5.99%), and loan term in months (typically 24-84 months for car loans).

5. Frequently Asked Questions (FAQ)

Q1: What is a typical car loan term in Canada?
A: Most car loans in Canada range from 36 to 84 months (3-7 years), with 60 months (5 years) being very common.

Q2: What interest rates can I expect?
A: Rates vary by credit score, lender, and market conditions. As of 2024, rates typically range from 4% to 12% for new cars, and higher for used cars.

Q3: Should I make a down payment?
A: A down payment of at least 20% is recommended to avoid negative equity, though many lenders accept as little as 0-10% down.

Q4: Are there other costs to consider?
A: Yes, factor in insurance, maintenance, fuel, and potential dealer fees (typically 1-3% of the loan amount).

Q5: What's better - shorter term with higher payments or longer term with lower payments?
A: Shorter terms mean less total interest but higher monthly payments. Choose based on your monthly budget and how long you plan to keep the vehicle.