You want to buy a car. The loan amount will be $31,000. The company is offering a 4% interest rate for 36 months (3 years). What will your monthly payments be?
To calculate the monthly payments for an auto loan, you can use the formula for the monthly payment amount on a fixed-rate loan.
The formula for calculating the monthly payment amount is:
Monthly Payment = [P × (r/n) × (1 + r/n)^nt] / [(1 + r/n)^nt - 1]
Where:
P = Loan amount ($31,000)
r = Annual interest rate (4% or 0.04 as a decimal)
n = Number of payments per year (12)
t = Loan term in years (3)
Plugging in the values into the formula:
Monthly Payment = [31,000 × (0.04/12) × (1 + 0.04/12)^(12*3)] / [(1 + 0.04/12)^(12*3) - 1]
Calculating this equation gives the monthly payment amount.