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# Car Buyers Calc

The **Car Buyer's Calc** provides formulas to compute the total cost of a car loan, estimate your monthly payment and compute the time it will take to pay off your loan.

## Instructions

The calculator buttons to the right are as follows:

## Answers to Questions

There is a lot of public interest on the effect of interest rate hikes on the global economy. But for most people, the acts of the Federal Reserve Board seem unrelated to the lives of the average person. The simple fact is that the Fed’s actions affect how the average person borrows money, and the trend of rising interest rates will hit the consumer.

The most obvious effect of the interest rate hike is on Fed based consumer debt. A common form of consumer debt comes when you buy a car with a car loan. So, this little exercise and the calculators on this page will simply show you the effect of the FED’s rate hike on the debt you may incur buying your new ride.

To bring this home, let’s work through a simple example and plug the numbers into these calculators. For the example, let’s assume that you borrow $25,000 to buy a new Honda Accord. And let’s assume two different interests rates. The first is the average rate of most new cars which is about 4.67%. And then let’s consider this after the FED’s 0.25% increase. We will use these calculators to tell us two things:

- What's my monthly payment going to be on a 5 year car loan?
- How much with that $25,000 car really cost with and without the rate hike?

## Payment and Total Loan Cost

First, let’s figure out what our payments would be if we decided we wanted to pay off our $500 debt in 10 months. To do this use the Monthly Loan Payment equation and enter the following:

- (P) - $25,000 Loan amount
- (i) – 4.67% Annual Interest Rate
- (n) – 60 monthly payments for a five year loan.

The Monthly Loan Payment equation tells us that our monthly payment will be $468.01. Second, the Total Loan Cost equation will tell us that the real total cost with interest is $28,080.60. That's $3,080.60 in finance charges.

## After the FED hike

Now we make the same calculations, except we use 4.92% APR (i). The monthly payment goes from $468.0 to $470.87. Yes, that’s only two dollars and eighty six cents more per month. And the total loan cost goes from $28,080.60 to $28,352.20, which is a total additional expense of $171.60.

So, if the rate hike is good for America, it’s not that bad for the average Joe, at least for now.

**Car Buyers Calc**, references 3 equations/constants.

**Equations and Constants **