How it is calculated
- Amount financed = price + fees − down payment − trade-in value.
- With a balloon payment, its present value is removed before computing the payment:
With a flat rate, common in car finance: interest = P × rate × years and payment = (P + interest − B) ÷ n.
Worked example
A 200,000 car with 40,000 down at a 4% flat rate over 5 years: financed 160,000, interest = 160,000 × 4% × 5 = 32,000, payment = 192,000 ÷ 60 = 3,200 a month.
Frequently asked questions
What is a balloon payment?
A lump sum due at the end that lowers monthly payments but raises the total cost; you may need to refinance it.
Is insurance included?
It depends on the lender. Add it under fees if it is financed with the car.
Flat or reducing rate?
A 4% flat rate equals about 7.4% reducing over 5 years. Always compare the APR.