automotive finance

How to Calculate Car Loan Repayments?

Buying a car is a significant investment, and for many Australians, securing a car loan is a necessary step in making that purchase. Understanding how car loan repayments are calculated can help you make informed decisions about your finances and ensure you select a loan that Meet your budget and lifestyle.

How Car Loan Repayments Work

Car loan repayments are typically made monthly and consist of principal (the amount you borrowed) and interest (the cost). The total amount you repay over the loan term depends on the loan amount, interest rate, and loan term.

Critical Factors in Car Loan Repayment Calculations

How to Calculate Car Loan Repayments?
#How to Calculate Car Loan Repayments?

Loan Amount

The loan is the amount you borrow from the lender to purchase the car. This includes the vehicle’s purchase price plus any additional fees or charges.

Interest Rate

The interest rate is the cost of borrowing the money, expressed as a percentage. It can be fixed (stays the same for the entire loan term) or variable (can change over time).

Loan Term

The loan term informs you how long you will have to pay back the loan. It is usually measured in years, with standard terms ranging from 1 to 7 years.

Calculating Car Loan Repayments

A formula considers the loan amount, interest rate, and loan time to determine how much is due each month. There are two main methods used to calculate repayments:

Flat Interest Rate

This method calculates interest on the entire loan amount over the loan term. The monthly repayment amount is fixed and includes both principal and interest.

Reducing Balance Method

Most car loans in Australia use this method. This approach calculates interest on the remaining loan balance each month. This means your repayments decrease over time as you pay off the principal.

Example Calculation

How to Calculate Car Loan Repayments?
#How to Calculate Car Loan Repayments?

Let’s say you want to borrow $30,000 to buy a car, and the interest rate is 6% p.a. over a 5-year term.

  • Calculate Monthly Interest Rate: Monthly Interest Rate = Annual Interest Rate / 12 Monthly Interest Rate = 6% / 12 Monthly Interest Rate = 0.5% or 0.005 as a decimal.
  • Monthly Repayment Calculation:Monthly Repayment = [P × r(1 + r)^n] / [(1 + r)^n – 1]
  • Where:
    • P = Principal amount ($30,000)
    • r = Monthly interest rate (0.005)
    • n = Loan term in months (5 years × 12 months/year = 60 months)
  • Monthly Repayment = [30,000 × 0.005(1 + 0.005)^60] / [(1 + 0.005)^60 – 1] Monthly Repayment = [30,000 × 0.005(1.005)^60] / [(1.005)^60 – 1] Monthly Repayment ≈ $566.14

Additional Costs

When calculating car loan repayments, consider additional costs such as:

  • Fees: Application fees, ongoing fees, and early repayment fees.
  • Insurance: Comprehensive car insurance may be required by the lender.
  • Taxes: Stamp duty and GST are charged to the car’s purchase price.

Loan Repayment Strategies

Making Extra Repayments

Making extra repayments can reduce the interest paid over the life of the loan and shorten the loan term.

Comparison Shopping

Compare interest rates, fees, and features of different loans to find the best deal.


Make a budget to Confirm you can comfortably afford repayments and cover other expenses.


Get in touch with us if you have any further questions. Our team of experts is here to assist you.

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