Auto loan amortization

Auto Loan Amortization Explained Auto loan amortization refers to the process of gradually reducing the principal balance of a car loan by a periodic amount. Its is typically a monthly payment which includes a part of the original loan amount (the principal) as well as interest (per the the annual interest rate). When the principal reaches zero, you have completely paid off your car loan.

The term of the auto loan is essential. The shorter the term, the higher the amount amortized with each monthly payment. The frequency and number of payments as well as the amount of the down payment can affect both the total amount of interest and the monthly payment. The down payment, cash rebates and trade-in should be taken into consideration to find out the total auto loan amount you will have to pay off.

Calculating the payment amount per period will help you evaluate whether you can afford a car loan or not. Additionally, it will allow you to put together an amortization schedule, which represents the list of monthly payments for the auto loan, showcasing how each payment is applied to the auto loan amount and the interest. This way, you will know the exact amount you still have to pay.

You can determine the payment you need to make each month by using the amortization payment calculator or the PMT function in Excel. For instance, the payment amount on a $20,000, 5-year auto loan with a nominal annual interest rate of 7.5% ( assuming that the sale price is $21,000 and you have made a $1,000 down payment) will be $400.76 per month.

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