Car Loan Formula Explained, With Examples
Every car loan result comes from one formula. Once you understand what goes into it, you can sanity-check any figure you are given, whether by an employer, a bank, a teacher or another website.
The formula
Total interest = loan × flat rate × years; instalment = (loan + interest) ÷ months.
What each input means
- Loan amount (S$): the value you enter in the calculator.
- Flat interest rate (% a year): the value you enter in the calculator.
- Tenure (years, max 7): the value you enter in the calculator.
Example
For example, with these inputs:
- Loan amount (S$): 70,000
- Flat interest rate (% a year): 2.78
- Tenure (years, max 7): 7
the calculator returns:
- Monthly instalment: S$995.50
- Total interest: S$13,622.00
- Effective interest rate (EIR): 5.19%
How the result changes
The table keeps the other inputs at their example values and changes loan amount (s$).
| Loan amount (S$) | Monthly instalment | Total interest | Effective interest rate (EIR) |
|---|---|---|---|
| 70,000 | S$995.50 | S$13,622.00 | 5.19% |
| 35,000 | S$497.75 | S$6,811.00 | 5.19% |
| 52,500 | S$746.62 | S$10,216.50 | 5.19% |
| 87,500 | S$1,244.37 | S$17,027.50 | 5.19% |
| 105,000 | S$1,493.25 | S$20,433.00 | 5.19% |
Why it matters
Interest rates, instalments and returns compound over years, so a small difference in rate or tenure turns into thousands of dollars. Working the numbers out yourself makes it easier to compare bank offers, avoid expensive debt and plan savings goals.
Compounding is the reason long-term saving works: returns earn further returns, so the growth curve steepens over time. The same maths works against you with debt, which is why credit card balances at around 27% a year grow quickly if only minimum payments are made.
Cars in Singapore carry costs found almost nowhere else, including the Certificate of Entitlement and the Additional Registration Fee. Loans are capped at 60% or 70% of the price depending on the car's Open Market Value, and the maximum tenure is seven years.
Calculators make it easy to compare scenarios side by side: a shorter tenure versus a lower instalment, a higher deposit versus more cash in hand, or paying down debt versus investing. Seeing the total cost, not just the monthly figure, usually makes the better choice obvious.
Related calculations
- Personal Loan Calculator (Flat Rate): Singapore banks advertise personal loans at flat rates.
- Flat Rate to EIR Converter: Converts an advertised flat interest rate into the equivalent effective interest rate.
- Compound Interest Calculator: Shows how money grows with compound interest.
- Simple Interest Calculator: Calculates simple (non-compounding) interest.
Use the Car Loan Calculator to plug in your own numbers.
Run your own numbers: Car Loan Calculator