Calculate Loan Amount Enter the cost of the potential car, down payment, and fees below. Press calculate when you’re ready. Cost of Potential Car 7,000 Down Payment 500 Incorrect Correct Taxes and Fees 340 Calculate Correct First, we need to figure out how much you want to borrow. You said you wanted to spend $5,000, and you will put $500 down. Based on that, we can estimate your taxes to be $340. Put those numbers into the calculator and press calculate to see how much money you will need for your loan.
The Correct Answer and Explanation is:
Correct Loan Amount Calculation:
Cost of Potential Car: $7,000
Down Payment: $500
Taxes and Fees: $340
Loan Amount = (Cost of Car + Taxes and Fees) – Down Payment
Loan Amount = ($7,000 + $340) – $500 = $6,840
✅ Correct Loan Amount: $6,840
Explanation:
When financing a car purchase, it’s important to understand how the loan amount is calculated so you can plan your budget accurately and avoid financial surprises. The loan amount is the total amount of money you need to borrow from a lender to purchase a car, after accounting for your down payment and any additional costs like taxes and fees.
Let’s break it down using the figures provided:
- The Cost of the Car is $7,000, which is the base price of the vehicle.
- You’re making a Down Payment of $500. This amount is paid upfront and reduces how much you need to borrow.
- There are also Taxes and Fees totaling $340. These can include sales tax, title fees, registration, or documentation fees, and they must be added to the total amount financed.
To find the loan amount, add the car’s cost and the taxes/fees, then subtract the down payment:
- First, add the cost of the car and the taxes/fees: $7,000 + $340 = $7,340
- Then subtract your down payment: $7,340 – $500 = $6,840
So, $6,840 is the amount you need to borrow from a lender. This is the principal amount that your loan will be based on. From there, your lender will calculate your monthly payments based on the interest rate and loan term.
Understanding this calculation helps you manage your expectations and ensure you don’t overborrow. It also helps you evaluate whether you can afford the monthly payments or if you should increase your down payment to reduce the loan amount.
