Computation for a Car Loan Monthly Amortization is basically simple interest or PRT (Principal x Rate x Term).
I will get to the shortcut computation first then will explain the traditional way of computing for the Monthly Amortization.
First, you will be needing the following data:
Principal Amount
Downpayment
Interest Rate
Term of Loan
Whereas;
Principal Amount
- The total unit price of the car less discounts and downpayment.
Downpayment
- The amount you will pay the dealer as your equity or participation to the loan. Regular downpayment is usually pegged at 20% of the Unit Price.
Interest Rate
- This is simply the interest rate of the loan usually quoted per year (annual) or total interest for the entire term. Example: 6% per annum/year which is equivalent to 30% if term of loan is 5 years (6% x 5) or 18% for a loan with term of 3 years (6% x 3).
Term of loan
- The duration of the loan expressed either in months or years i.e. 5 years or 60 months.
When you have the aforementioned data, you can now compute for your monthly amortization.
1. SHORTCUT COMPUTATION
Unit: Toyota Fortuner
Price: 1,633,000.00
Discount: 20,000.00
Downpayment: 322,600 (1,633,000 - 20,000 x 20%)
Interest Rate: 6% per annum/year or 30% for 5 years (6% x 5yrs)
Term: 5 years or 60 months
FORMULA
Monthly Amortization = Principal (Unit Price less discount and DP) x 1+(total interest) ÷ term (number of months)
MA = 1,290,400 x 1.30% ÷ 60
MA = 27,958.66
2. TRADITIONAL COMPUTATION
Formula: Get the total interest you will pay for the entire term, add this to the principal (total price less discounts and downpayment), then divide it by the term expressed in number of months.
Unit: Toyota Fortuner
Price: 1,633,000.00
Discount: 20,000.00
Interest Rate: 6% per annum/year or 30% for 5 years (6% x 5yrs)
Downpayment: 322,600 (1,633,000 - 20,000 x 20%)
Term: 5 years or 60 months
Data needed to compute:
Principal Amount: 1,290,400 (1,633,000 - 20,000 x 20% - 322,600)
Interest Rate: 6%
Term: 5 years
Formula is simple interest rate:
I (interest) = P (principal) x R (Rate x Term)
I = 1,290,400 x 30%
I = 387,120
Now you will get the Total Loan Amount which is basically Principal + Interest:
1,290,400 + 387,120 = 1,677,520
Monthly amortization = Total loan amount / Term (number of months)
= 1,677,520 / 60
= 27,958.66 Monthly Amortization for 5 years
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