An auto loan amortization is a way of calculating the interest and principal amounts for your car loan. This information can help you see how much money you need to pay each month, which is helpful if you’re looking to buy a car or find out the current loan status. It also gives you an idea of when your loan will be paid off completely, which helps build a good credit history by paying off loans on time.
Auto Loan Amortization
A car loan amortization is a schedule that shows the amount of interest and principal paid on the loan. It’s important to note that an auto loan amortization schedule can be used for any vehicle, including cars, motorcycles, boats and even airplanes.
Auto lenders typically use this tool to determine the amount of money you can afford for your new ride. The lender will look at how much you make each month and find out how much you can afford to pay back each month in terms of principal and interest (the two components that make up the monthly payment). Once they know these amounts, they’ll use them as guidelines to set up your auto loan amortization schedule, so they know precisely how much will go toward paying down your balance each month until it’s paid off completely.
“During the early part of the loan, a larger portion of each payment you make is directed to the interest and fees that you owe,” says Lantern by SoFi experts.
How Is the Amortization Process Calculated?
Let’s assume your auto loan is for $18,000 at a 6.5% interest rate over 60 months with a monthly payment of $225. In this case, the amortization process will look like this:
- First, you calculate the principal balance:
- Principal Balance = Amount Financed – Amount of Any Down Payment(s) – Total Interest Paid So Far + Interest Due This Month (if any) or 0 if there was no down payment and no previous payments have been made on this loan yet.
How to Use Amortization Information?
You’ll want to know about amortization when shopping for an auto loan. This information will help you make an informed decision about which loan is best for your situation.
To use the amortization table to calculate monthly payments:
- Locate your principal (the amount borrowed).
- Multiply that by the number of months in your term, and then divide by 12 to get a monthly payment amount.
- Then multiply that result by .0025 if it’s a variable-rate loan; otherwise, use .005 as a constant rate.
- Finally, subtract any down payment from this final figure since it won’t be paid back with interest over time, as your principal balance will be!
How to Determine a Car’s Value?
To determine the value of your car, you’ll need information about its trade-in value and payoff amount. Once you have this data, calculating the monthly payment is easy.
The amortization information can be very useful in determining your car’s value. It will help you know if the car has depreciated enough to make it worth buying or if there’s still time to wait before making a decision. The process is simple and easy to understand but requires some math skills on your part (which we’ll go over in the next section).