Is there a simple formula to figure out the interest that would be paid on a car loan? For example, if the principal amount financed is $20,000..... and the interest rate is 8% for 60 months, how much total interest would be paid at the end of the term?

Thank you in advance.

 

On a basic calculation you would be paying $405.53 per month for 60 months which totals $24,331.80, meaning you will pay 4,331.80 in interest.

Check out this web site for simple calculations ......

http://www.interest.com/hugh/calc/simple.cgi

A simple rule of thumb, which will get you close to the answer is principal * interest * HALF of the duration (this averages the repayments out over the life of the loan)

i.e. 20,000 * 8% (interest) * 2.5 (years - half the loan length) = $4,000.

 

This can be solved easily with a financial calculator or with the following formula:

i * (1+i)^n
----------------- * (PV) = Payment
[(1+i)^n] - 1


where:

i = interest rate (i.e., (APR/12) = .08/12 = .00666)

n = number of payments (i.e., 60)

PV = Present Value (i.e., $20,000)


Solving the equation gives you:

(.0066)* (1.0066)^60
---------------------------- * $20,000
(1.0066^60) - 1


(.0066) * (1.4898)
-------------------------- * $20,000
(1.4898) - 1


.02027 * $20,000 = $405.53 per month


$405.53 * 60 = 24,331.68


Interest equals:

$24,331.68 - 20,000 = 4,331.68


This formula can also be used to illustrate how money can be saved by paying off a loan faster. . . For example, with a 48 month loan, the monthly payment would be $488.26. The total payments would be $23,436.41. Thus total interest would equal $3,436.41, a savings of $895.27 over the duration of the loan. . .

Hope that helps. . .

 

Iceman correct.