To calculate the monthly payment for a car loan, we can use the formula for a fixed installment loan. The formula is:
Monthly Payment = (Principal * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate) ^ (-Number of Months))
Given:
Principal (Loan amount) = $25,000
Interest Rate = 6.25% per year
Number of Years = 5
First, let's convert the annual interest rate to a monthly interest rate. Since there are 12 months in a year, the monthly interest rate is:
Monthly Interest Rate = (Annual Interest Rate / 100) / 12 = (6.25 / 100) / 12 = 0.0052083
Next, let's convert the number of years to the number of months:
Number of Months = Number of Years * 12 = 5 * 12 = 60
Now, we can substitute these values into the formula to calculate the monthly payment:
Monthly Payment = (25,000 * 0.0052083) / (1 - (1 + 0.0052083) ^ (-60))
Calculating the monthly payment using a calculator or spreadsheet software, we find:
Monthly Payment ≈ $471.78
Therefore, the monthly payment for a $25,000 car with a 5-year loan at 6.25% interest is approximately $471.78.