Auto Loan Payment Example


A car is financed using a three-year loan. The loan has a 8% nominal annual interest rate, compounded monthly. The price of the car is 7,000, and a deposit of 2,000 is paid in cash. Calculate the monthly auto loan payments, assuming that the payments start one month after the purchase.


The value of the loan is the price of the car less the initial deposit (7,000 – 2,000 = 5,000) (PV). This loan is repaid using monthly installments, so one period is one month, and the term of the loan is 3 years or 36 months (n). The interest rate has been quoted as an annual rate so the periodic (monthly) rate is 8%/12 per month (i)

As the auto loan payments (Pmt) are made at the end of each period, and we know the present value, the problem is solved using the annuity payment formula PV as follows:

Auto loan payment = PV x i / (1 - 1 / (1 + i)n)
PV = Value of the auto loan 5,000
n = number of months = 3 x 12 = 36
i = nominal rate = 8%/12 per month
Auto loan payment = 5000 x (8%/12) / (1 - 1 / (1 + 8%/12)36)
Auto loan payment = 156.68 

Auto Loan Payment Explanation

For the auto loan balance to be cleared at the end of 36 payments, the present value of the payments must be equal to the present value of the auto loan.

The solution to this problem simply uses the present value of an annuity formula to find the 36 payments which, at a discount rate of 8%/12, will give a present value of the auto loan of 5,000.

Auto Loan Payment Example November 6th, 2016Team

You May Also Like

Related pages

journalizing transactions in accounting examplesdebtors ledger formatthe pmt functiondebit and credit entries in accountslifo reserve adjustmentpresent value of lump sum formulafreight prepaid definitionaccounting concept and principlesbad debt journal entryhow to calculate notes payablethe balance of a control account in the general ledgerwhat is the meaning of retained earningssample income statementstransfer of receivables with recoursewhat are adjusting entriesfob shipment meansaccounts receivable vs accounts payableprovision for salary journal entryfinding the interest rate of an annuityworksheet trial balance and adjustmentsexcel mirrtreasury stock account typebalance sheet prepaid expensesunearned revenue liabilitycash disbursements journalis petty cash an asset accounttypes of subsidiary ledgersdirect materials and indirect materialsreturn outwardsprepaid insurance premiumsmultiple-step income statementsprofit margin formulasbond cash flow calculatordefinition of suspense accountdupont model calculatorperpetual inventory system formulasimple bookkeeping templateaccounts receivable journaladjusting entries affect the cash accountunrealized loss journal entrydeferred revenue accounts receivableaverage owner's equityfuture value of a perpetuity formulabond sinking fund journal entrywhat are debits and credits accountingwhat is folio in accountinghow to calculate cost of goods available for salecompute the payback periodleverage ratios formuladiminishing value depreciation formula accountingamortization templateaccounting spreadsheet templatesales ledger definitionstockholders equity calculationformula for dsocontra expenseexamples of comprehensive incomedirect materials usage varianceexcel formula mortgagefv pv formulathe lifo reserve isbookkeeping entries examplesmarkup calculation in excelpmt rate nper pv fv typeaccounting ledger formatprovision for obsolete inventorydiscounted present value excelaccounting entries for disposal of subsidiaryhow to record depreciation expense journal entrycoupon bonds formulamaterial requisitionsbond payable on balance sheetfuture value of annuity formulanet profit sales ratioleverage ratio formula accountingdebits and credits testlease accounting entriessales taxes collected by a retailer are recorded bycogs in accounting