How do they calculate what your monthly auto loan payment will be?

So, I recently bought a new vehicle and was wondering how my monthly payments were figured out. After digging around a bit, I found this site where a high school teacher has posted the formula as an exercise for her students. Not only that, but I stumbled across this other website where I could find simple solutions to the most of my financial woes.

Well, I thought I would share this gem in case anybody else is interested.


You can go to this site and the Almighty Internet will give you the same answer.

Alternatively, you can download this document I made in Open Office Calc (free) and see, with your own eyes, what’s going on.

I would love to know, if anyone ever reads this, how the initial finance charge is decided. I thought about it, fruitlessly, until my brain hurt.

Here is the problem:
You have a principal amount of $4049.00. Your finance charge is calculated to be $538.12. Your interest rate is 8.29%. What formula was used to arrive at the value $538.12?

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