Let’s walk through a monthly payment calculation because you need to understand how these numbers are generated. Your DMS will do the math for you, understanding the formula helps you verify accuracy and explain the numbers to customers.
Over 48 months, the total payments would be approximately $20,736. The finance charge — the total interest paid — would be approximately $2,736. These are the numbers that must appear on the buyer’s contract: the monthly payment, the number of payments, the total of payments, and the finance charge.
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💡 Real-World Example A customer is deciding between a 48-month and a 72-month loan. On the 48-month loan at 7.2%, the monthly payment is about $432 and the total interest is about $2,736. On a 72-month loan at the same rate, the monthly payment drops to about $308, but the total interest climbs to about $4,176 — roughly $1,440 more in interest. The lower monthly payment costs significantly more over the life of the loan. This is exactly the kind of comparison you should help your customers understand so they can make informed decisions. |
Use this to validate your DMS is calculating correctly!