How to calculate a car loan payment

A new car, or new to you (used car), is exciting.  But a car loan payment?  Not so much.

If you are financing a car loan through the dealership, be alert and be ready. The finance departments are more about sales than anything else.  At this point, you may be exhausted and think the game of negotiating is over because you agreed on a price.  It's not.  Don't be naïve.

Mathematical mistakes are highly unlikely in the finance department.  If they are wrong, it's usually in the dealer's favor.  Funny how that works. So be alert and beware.

In my experience, I have seen mathematical mistakes (I am highly suspicious the dealership is trying to lie and it's not really a mistake) that result in higher payments and higher than advertised rates.

It's an easy fix to make sure your car loan payment is correct.  Arm yourself with a financial calculator and work out the math yourself.  It could save you thousands.

How to calculate a car loan using the 10bii financial calculator

Table of Contents

    Download 10bii Financial Calculator App

    The financial calculator for your iPhone can be found here. You can use any 10bii financial calculator but some work a little differently than others. The link below is the financial calculator that I have been using for years.

    This is not an affiliate link, this calculator just works well.

    How to set up the 10bii calculator

    1. Clear Out the Calculator

    First, you need to clear out all the values and set the payments to 12 payments per year.  While the interest is calculated daily, setting up our calculation for monthly will help us quickly see how much the monthly car payments will be.  If you set up the calculator for 365 payments, that's okay, too, but you will have an extra step in calculating your monthly payments.  TIP: The calculations will round since we are using monthly payments instead of the accurate calculation of daily interest.  If the numbers are not exactly as shown, this is most likely why.

    Press zero, then the "N," key.
    Press zero, then the "I/YR," key.
    Press zero, then the "PV," key.
    Press zero, then the "PMT," key.
    Press zero, then the "FV," key.
    You should now see zero's across the top of the calculator.


    2. Setup Payment Frequency

    Interest payments are calculated on a daily basis but since you're most likely to make monthly payments for your loan we will set up the calculator on monthly payments.  The calculations will be very close but if you are off by a few pennies this is the reason and it's not an error.

    Press 1, then 2 for 12 payments.
    Press shift (orange button) then PMT

    3. Setup the Number of Payments

    The number of payments is the "N" button at the top.  First, press the clear button marked "C" to clear out any numbers left on the screen.  It probably already shows zeros but just in case, clear it out.  Then enter the number of years you will make payments.  Not the number of payments or the number of months.  Because we previously entered the payments per year in step 2, you only need to enter the number of years.  Once you do, you'll see the total number of payments right above the "N" key.

    Enter the number of years.
    Press the shift key (orange key).
    Press the N key

    Notice in this example, I am entering 5 years, so the number of payments is calculated as 5 years x 12 months = 60 total payments

    4. Setup the Interest Rate

    The interest rate will be entered as an annual number; it's the Annual Percentage Rate (APR).  Since we entered the number of payments per year already, we will not divide the APR to adjust for those payments.

    The keystrokes are similar to entering the number of payments.  We will enter the APR.

    Enter the APR/interest rate.
    Press the shift key (orange key)Press I/YR

    5. Enter Loan Amount (PV, Present Value)

    The loan amount is the balance at the beginning of your loan.  If you buy a car for $30,000 and finance $20,000 then $20,000 is your loan amount.

    Enter the loan amount.
    Press the PV key.
    Goto the next step.

    6. Solve for Payment Amount (PMT)

    In this calculation, we are figuring out how much the payment will be.  Since we want to solve for payment then we will not enter anything for payments.  Skip it.

    7. Enter Future Value (FV)

    The loan's future value in this calculation will be zero.  If this is confusing, then think of the future value as your goal; to have this loan paid off.  You want to have a future value of zero because you want this loan completely paid off after you have made all the payments.

    Enter Zero.
    Press the FV key.
    Go to the next step.

    7. Find out the payment amount

    Last step, all you need to do is press the PMT button and it will display the payment.  That's it.  You can adjust each number to see how different rates or lengths of your loan will affect the monthly payment.