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How is the monthly payment calculated?
The monthly payment (M) equals the loan amount (L) times the X factor (X) in an auto loan.
M = LX. Sounds so easy! But...
What is the X Factor in a car loan?
The X Factor is the equation used to charge interest to the unpaid portion of the loan every month as the buyer pays it down over the term.
X = (MPR x Z) ÷ (Z - 1)
Can I calculate by hand?
To check the math, remember that Annual Percentage Rate (APR) is converted to Monthly Percentage Rate (MPR) in our car loan calculator.
APR ÷ 12 = MPR
And Annual Term is converted to Monthly Term (T) so all factors relate accurately. So instead of using 6 years, compute with 72 months.
Once the X Factor is calculated, the rest of the car loan equation is easy.
Want to know more about auto finance?
Check out the F&I Underwriting Guide.