Loans, mortgages and the cost of owning a car

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Learn it A loan is a present-value annuity: the regular payment is R = PV·i/[1 − (1 + i)⁻ⁿ]. The total interest paid = (payment × number of payments) − amount borrowed. Owning a car also means insurance, gas, maintenance and depreciation.

Example: $20 000 car loan at 6% per year, monthly payments for 5 years.

i = 0.005, n = 60.
R = 20 000(0.005)/(1 − 1.005⁻⁶⁰) ≈ $386.66 a month.
Total interest ≈ 386.66 × 60 − 20 000 ≈ $3199.60.

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