Credit Card Center Advertiser Disclosure^{†} |
10-16-2014 10:48 AM
This may seem like a very noob question.. But i just need to make sure
i understand this before i go to the dealership tomorrow...
For example sake...
Lets just say your interest rate is 3%
Your monthly payments are $100.
How is the auto loan calculated?
Is it 3% of every single monthly payment you make?
10-16-2014 01:55 PM - last edited on 10-20-2014 06:02 PM by Kenny
in short, no.
The formula to calculate the payment is as follows:
where
So let's say you finance 15,000 for 48 months at 2.5%. Your payment is $328.71. So (15,000 * .025)/360 * 31 = 32.29. So of your first payment 295.71 goes to principal and 32.29 goest to interest leaving you a principal balance of $14,704.29. Next month the calculation is ($14,704.29 *.025)/360 *30 = 30.64. So 298.08 goes to principal and so on for a total of 48 payments. You can download from multiple sites an amortization schedule or use excel. By the way, the 360 is a holdover from an earlier era when these calcs were done by hand. Some banks are using a 365 day year, but many still use 360.
10-16-2014 07:21 PM - last edited on 10-20-2014 06:03 PM by Kenny
coterotie wrote:in short no.
The formula to calculate the payment is as follows:
where
- A = payment Amount per period
- P = initial Principal (loan amount)
- r = interest rate per period
- n = total number of payments or periods
So let's say you finance 15,000 for 48 months at 2.5%. Your payment is $328.71. So (15,000 * .025)/360 * 31 = 32.29. So of your first payment 295.71 goes to principal and 32.29 goest to interest leaving you a principal balance of $14,704.29. Next month the calculation is ($14,704.29 *.025)/360 *30 = 30.64. So 298.08 goes to principal and so on for a total of 48 payments. You can download from multiple sites an amortization schedule or use excel. By the way, the 360 is a holdover from an earlier era when these calcs were done by hand. Some banks are using a 365 day year, but many still use 360.
**********
At least today most every lender uses simple interest (not sure about repo-buy-here-pay-dear lots) rather than the rule of 78's "rule of 78 - sum-of-the-digits method" which was pretty much universal not so long ago. To save you - that don't know - the interest was front loaded on these loans and cost the borrower dearly ANd most had a pre-payment charge if you paid the loan early.
Ahhhh, the good old days....
Edit: Link for those of you that might be interested in the rule of 78 http://www.bankrate.com/brm/news/auto/20010827a.asp
10-16-2014 07:47 PM - last edited on 10-20-2014 06:04 PM by Kenny
coterotie wrote:in short no.
The formula to calculate the payment is as follows:
where
- A = payment Amount per period
- P = initial Principal (loan amount)
- r = interest rate per period
- n = total number of payments or periods
So let's say you finance 15,000 for 48 months at 2.5%. Your payment is $328.71. So (15,000 * .025)/360 * 31 = 32.29. So of your first payment 295.71 goes to principal and 32.29 goest to interest leaving you a principal balance of $14,704.29. Next month the calculation is ($14,704.29 *.025)/360 *30 = 30.64. So 298.08 goes to principal and so on for a total of 48 payments. You can download from multiple sites an amortization schedule or use excel. By the way, the 360 is a holdover from an earlier era when these calcs were done by hand. Some banks are using a 365 day year, but many still use 360.
mikemsceo wrote:This may seem like a very noob question.. But i just need to make sure
i understand this before i go to the dealership tomorrow...
For example sake...
Lets just say your interest rate is 3%
Your monthly payments are $100.
How is the auto loan calculated?
Is it 3% of every single monthly payment you make?
Haha.. that is why i asked.. i never learned really how it is calculated. Thanks!
10-18-2014 07:18 AM - edited 10-18-2014 07:18 AM
Stating a 3% APR is easier to understand than a daily 0.000082191% (365-days) or 0.000083333% (360-days) rate. This is, as a poster stated, because institutions use either 365 or 360 days to calculate interest.
To make interest calculations easy, divide the APR by 12 (number of months) to find the monthly rate (remember to convert % to decimal first)... 0.03/12 = 0.0025
1. Multiply the monthly rate with the loan balance to find the interest charge for that month... 0.0025 x $10,000 = $25.
2. Subtract $25 from $100 to find the amount applied towards the loan balance... $100 - $25 = $75
3. Subtract $75 from the loan balance to figure the new loan balance... $10,000 - $75 = $9,925
Repeat steps 1, 2, and 3. The decrease in monthly interest charge directly equates to increases in principal payments until the loan is paid off.
10-22-2014 08:24 PM
Hoya08 wrote:Stating a 3% APR is easier to understand than a daily 0.000082191% (365-days) or 0.000083333% (360-days) rate. This is, as a poster stated, because institutions use either 365 or 360 days to calculate interest.
To make interest calculations easy, divide the APR by 12 (number of months) to find the monthly rate (remember to convert % to decimal first)... 0.03/12 = 0.0025
1. Multiply the monthly rate with the loan balance to find the interest charge for that month... 0.0025 x $10,000 = $25.
2. Subtract $25 from $100 to find the amount applied towards the loan balance... $100 - $25 = $75
3. Subtract $75 from the loan balance to figure the new loan balance... $10,000 - $75 = $9,925
Repeat steps 1, 2, and 3. The decrease in monthly interest charge directly equates to increases in principal payments until the loan is paid off.
Thanks for that!!
I guess my next question is....
how is the monthly payment calculated???
Is it...
Car Cost $ 5000
My down Payment: $ 500
Remaining Balance: $ 4500 /36 year term
$125 for 36 months???
10-23-2014 05:06 AM
Well you could use the formula which would look something like this:
P = 4,500
R= 3%
N = 36
Or you could use the handy dandy calulator available here:
http://www.bankrate.com/calculators/auto/auto-loan-calculator.aspx
Which gives you a payment of 130.87/month for 36 months.
mikemsceo wrote:
Hoya08 wrote:Stating a 3% APR is easier to understand than a daily 0.000082191% (365-days) or 0.000083333% (360-days) rate. This is, as a poster stated, because institutions use either 365 or 360 days to calculate interest.
To make interest calculations easy, divide the APR by 12 (number of months) to find the monthly rate (remember to convert % to decimal first)... 0.03/12 = 0.0025
1. Multiply the monthly rate with the loan balance to find the interest charge for that month... 0.0025 x $10,000 = $25.
2. Subtract $25 from $100 to find the amount applied towards the loan balance... $100 - $25 = $75
3. Subtract $75 from the loan balance to figure the new loan balance... $10,000 - $75 = $9,925
Repeat steps 1, 2, and 3. The decrease in monthly interest charge directly equates to increases in principal payments until the loan is paid off.
Thanks for that!!
I guess my next question is....
how is the monthly payment calculated???
Is it...
Car Cost $ 5000
My down Payment: $ 500
Remaining Balance: $ 4500 /36 year term
$125 for 36 months???
10-23-2014 07:28 AM - edited 10-23-2014 07:30 AM
Although online calculators are correct, I do my own calcuations.
The formula that's been posted throughout this thread is correct. However, I use Excel (doesn't matter if on a Mac or PC) which handles all the math. Using your example:
Price of: $5000
Down payment of: $500
Loan term of: 36 months
Interest Rate of: 3%
The formula in Excel is =PMT(rate, nper, pv, (fv), (type))
In the simplest terms without getting into technicalities:
PMT is the monthly payment you're tyring to figure
rate is the Interest Rate in decimal form
nper is the Loan Term
pv is the TOTAL loan amount you are requesting
fv is not necessary for this example
type is not necessary for this example
PMT = ?
rate = 0.03/12 (divide by 12 since the interest is compounded monthly - it's daily, but it's easier to work in months and because the loan term is in months)
nper = 36
pv = $4,500 ($5,000 - $500 = $4,500, this is the TOTAL loan you are requesting)
So.... in the Excel cell, you enter
=PMT(0.03/12, 36, $4,500)
The returned number is -130.87 or (130.87) depending on your cell format.
* You will receive a negative number. To avoid minute detail discussions and explanations, don't worry too much about the negative number since it depends on how you utilize or interpret it with other numbers. Just realize that it's the monthly payment (principal and interest).
** This formula is the same to calculate mortgage payments and a sleuth of other financial questions as long as you understand the what you're doing
10-23-2014 09:52 AM
Hmmmm
Is it compound interest or simply interest off the principal loan ?
Inactually made a spreadsheet on excel with the formula you gave me
If anybody needs I can upload it ...
10-23-2014 10:00 AM
Hoya08 wrote:Although online calculators are correct, I do my own calcuations.
The formula that's been posted throughout this thread is correct. However, I use Excel (doesn't matter if on a Mac or PC) which handles all the math. Using your example:
Price of: $5000
Down payment of: $500
Loan term of: 36 months
Interest Rate of: 3%
The formula in Excel is =PMT(rate, nper, pv, (fv), (type))
In the simplest terms without getting into technicalities:
PMT is the monthly payment you're tyring to figure
rate is the Interest Rate in decimal form
nper is the Loan Term
pv is the TOTAL loan amount you are requesting
fv is not necessary for this example
type is not necessary for this example
PMT = ?
rate = 0.03/12 (divide by 12 since the interest is compounded monthly - it's daily, but it's easier to work in months and because the loan term is in months)
nper = 36
pv = $4,500 ($5,000 - $500 = $4,500, this is the TOTAL loan you are requesting)
So.... in the Excel cell, you enter
=PMT(0.03/12, 36, $4,500)
The returned number is -130.87 or (130.87) depending on your cell format.
* You will receive a negative number. To avoid minute detail discussions and explanations, don't worry too much about the negative number since it depends on how you utilize or interpret it with other numbers. Just realize that it's the monthly payment (principal and interest).
** This formula is the same to calculate mortgage payments and a sleuth of other financial questions as long as you understand the what you're doing
Yes!!!! I got something very similar to that! With those exact numbers! Ecxept im using a more realistic 12% for me which is probably what they're going to offer.
I guess paying towards the principal is the best way to cut down interest tremendously withnsuch a high interest rate
Forums posts are not provided or commissioned by FICO. Forums posts have not been reviewed, approved or otherwise endorsed by FICO. It is not FICO's responsibility to ensure all posts and/or questions are answered.
† Advertiser Disclosure: The listings that appear on myFICO are from companies from which myFICO receives compensation, which may impact how and where products appear on myFICO (including, for example, the order in which they appear). myFICO does not review or include all companies or all available products.* For complete information, see the terms and conditions on the credit card issuer’s website. Once you click apply for this card, you will be directed to the issuer’s website where you may review the terms and conditions of the card before applying. While myFICO always strives to present the most accurate information, we show a summary to help you choose a product, not the full legal terms - and before applying you should understand the full terms of products as stated by the issuer itself.
Copyright ©2001-2015 Fair Isaac Corporation. All rights reserved. | Terms of Use | Privacy Policy | Sitemap
IMPORTANT INFORMATION: All FICO^{®} Score products made available on myFICO.com include a FICO^{®} Score 8, along with additional FICO^{®} Score versions. Your lender or insurer may use a different FICO^{®} Score than the versions you receive from myFICO, or another type of credit score altogether. Learn more
FICO, myFICO, Score Watch, The score lenders use, and The Score That Matters are trademarks or registered trademarks of Fair Isaac Corporation. Equifax Credit Report is a trademark of Equifax, Inc. and its affiliated companies. Many factors affect your FICO Score and the interest rates you may receive. Fair Isaac is not a credit repair organization as defined under federal or state law, including the Credit Repair Organizations Act. Fair Isaac does not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit record, credit history or credit rating. FTC's website on credit.