How to Calculate Finance Charges on a New Car Loan

culled from:wikihow.com

Method 1 of 2: Calculate the Monthly Payment of the Car Loan

1. 
   1
   Research the current interest rates you can get for a new car loan and choose 1 that fits your personal financial situation.
   • Interest rates will vary depending on several factors, like your credit score, the lending institution, current promotions or the size of your down payment.
   • It's important to have knowledge of your personal credit score, as lenders often use this to determine your finance charge. You can request your credit scores from all 3 credit repositories for free once per year.
   2. 
      2
      Decide on the term of the car loan that best fits your budgetary constraints.
      • Loan terms vary between 1 and 6 years. The lender's underwriters may determine the final loan term.
      • You will pay fewer finances charges over the life of the loan with shorter loan terms, but you will have a higher monthly payment.
   3. 
      3
      Figure out the exact dollar amount of the car loan you wish to finance.
      • The final loan amount is the purchase price minus the value of a trade-in or down payment, if any.
   4. 
      4
      Determine the proposed monthly payment using payment variables and an online calculator.
      • Some calculators require the number of months rather than number of years to calculate the monthly payment. Take a moment to confirm which type of term the website wants so it will accurately calculate the car loan's monthly payment.
      • For example, the monthly car payment for a car loan amount of $25,500 with an interest rate of 6 percent and a loan term of 4 years (or 48 months) would be $598.87.

   Method 2 of 2: Calculate the Finance Charges on a New Car Loan

2. 
   1
   Multiply the monthly car payment by the number of payments you will make over the duration of the car loan. This will give you the total cost of the car, including the total finance charges.
   • The total cost of the car is equal to the monthly payment multiplied by the number of payments you will make over the loan term. If you had a monthly payment of $598.87 and a loan term of 48 months, the total cost would equal $28,745.76.
3. 
   2
   Calculate the finance charges by subtracting the original loan amount from the total cost of the car. The resulting difference is the finance charges that you will pay over the life of the loan.
   • If the purchase price was $25,500 and the total cost of the car was $28,745.76, then the resulting difference would be the total finance charge over the life of the loan. This would equal $3,245.76.