How to Calculate New Car Payments

You may go to a new car dealership with a firm idea in mind of how much you want to pay each month for your new car, but it doesn't always work out exactly as you planned. A $200 per month payment can quickly balloon to $300 or more if you add extra options to the car, choose a more expensive model or simply forget to factor in certain costs. It's a smart idea to know how to calculate new car payments offhand in case you have questions at the dealership.

Determine the final cost of the new car after all discounts. This doesn't usually include cash rebates that you may receive from the dealer or special car buying programs offered as an incentive after the auto loan has closed. Assume a final cost of $12,700 for the car after discounts.

Deduct the amount of money you plan to place as a down payment on the car. In this example, assume a $1,000 down payment.

Add the amount of sales tax or other dealer fees you plan to finance into the principal balance for the loan. For the purpose of this example use a six percent sales tax rate, which equals $600 plus dealer financing and document preparation fees of $500, totaling $1,100. The total principal balance for this loan is $12,800 ($12,700 minus $1,000 plus $1,100).

Decide how long you want to make payments in months (for instance, 60 months for a five-year loan) and the interest rate the dealership or your bank plans to offer. Use 6.75 percent in this example.

Use a formula to determine the monthly payment by plugging in the figures you've determined in the previous steps. The formula is P( r / 12 ) / (1 - ( 1 + r / 12 )^-m) where "P" is the amount you're borrowing ($12,800), "r" is the interest rate expressed as a decimal figure (.0675) and "m" is the length of the loan in months (60).

Insert the details into your car payment formula to figure out your obligation for the car for the next five years. The result is 12,800(.0675/12) / (1 – (1+.0675/12)^-60), which equals $251.95 per month.


  • Practice this calculation by hand several times and check the results on an online calculator to make sure that you're on the right track. Try to learn how to do it by heart so that you can estimate the payment in a few quick moments at the dealership.
  • Make sure you factor in your car insurance premium payments when deciding if you can afford the payments for this new car.

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