The true value of a car loan is usually greater than the amount borrowed. It can, in fact, be significantly higher depending on the interest rate of the loan. If you would like to buy a car, but need to borrow a large chunk of money to do it, you should first determine the total cost of that loan once you have paid it back. That way you can get a better idea about whether you can truly afford it.
Instructions
- 1
Write this equation for the total amount of a car loan:
Value of Loan = ((P x (i/12)) / (1 - (1 + i/12)^-m)) x m
P = principal, or amount borrowed
i = interest rate in decimal form
m = total number of monthly payments
^ = symbol that means "to the power of"
Determine the interest rate, principal and duration of the loan that you are considering. For example, consider a 36-month loan for $12,000 at 7.5 percent interest:
P = $12,000
i = 0.075
m = 36
Insert the numbers into their proper variables in the equation for the total value of the loan. Use a calculator to find the final value.
Value of Loan = (($12,000 x (0.075/12)) / (1 - (1 + 0.075/12)^-36)) x 36 = $13,437
The total value of the loan is $13,437.
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