According to the report on 20/20, other mistakes were made by financial officers at car dealerships such as not deducting the down payment from the sales price when determining the loan amount.

The general lesson is that consumers must be careful and check the math on all consumer transactions, not just car sales.

If you would like to see car loan payment calculations, and you have a Java 1.1 enabled browser such as Internet Explorer 4.0, you can click to the Prime Business Corral Car Loan Payments Calculation page Of course, car loan calculations are featured on other sites, but the Corral will go a step further and provide an explanation on how to calculate the payment amount below.

How Calculations are made.

Interest on loans can be paid in a variety of methods. However, the simple amortized method is popular because it levels out the payments over the term of the loan.

Using this method, the first step is to calculate the first month's interest by multiplying the principal by the interest rate, then--since the interest is a yearly rate--dividing the result by 360 to get a daily amount, then multiplying the daily amount by 30 to get the first month's interest.

To get the next month's interest, the formula is the same except that the principal used must be the total principle minus the monthly fraction of the total principle. For example, if $24,000 is borrowed for 24 months, the monthly fraction is $1000. The interest for the first month will use $24,000 as the principle, and the interest for the second month will use $23,000 as the principal.

Thus, the second month's interest is calculated by deducting the monthly fraction from the total, and using the formula for the first month. This process continues for each month in the term.

When completed for all the months, the total interest is added up, and then added to the principal. The total of principal and interest is then divided by the months in the load for the monthly payment amount.

The amount of principal in each payment can be determined by simply deducting that month's interest from the payment amount.

Different totals can be calculated based on rounding. For example, total interest and monthly interest amounts may differ depending on when rounding is done in the formula.

The Prime Business Car Payment Calculator incorporates no rounding for simplicity. The results for each monthly payment would thus vary a little from other formulas that include rounding.

If the monthly payment difference from another formula is relatively major, however, you should inquire as to how the other calculations are being made.