Hi I'm buddy brew attorney and real estate investor in Southern California and I teach you a personal finance class entitled calculate your way to financial freedom now in today's video we have Sheila who's contemplating getting a car and possibly getting a car loan but you want to know how big her monthly payments will be on that car loan now let's get started hi and welcome back in this situation we have Sheila Sheila is contemplating it by a car and getting a car loan and she wants to figure out how she can compute what her monthly payments would be on the car loan.
In this situation you'll see that we have a piece of paper in front of us and at the bottom we have a line of the box and the top we have a box with a number of different letters in there this line the box on here is a cash flow diagram. This is helps you to visualize the flow of money to make it easier to see and to understand and then we'll put into the information in the classroom diagram once we do that we then enter the numbers that we've get it from the cash flow diagram into this calculator table once we do that then we take this. This is a hewlett-packard ten bii financial calculator we enter the numbers from this calculator table into here and once we know for the the calculator will solve for the fifth and it makes the allows us to get the answer.
In this situation we have Sheila she has the car loan then she's interested in getting would be for $25,000 it would be a five-year loan or 60 months fully amortized which means at the end of the loan it is completely paid off and the interest is six percent.
She wants to find out what or her monthly payments going to be.
In this situation we start off with the cash flow diagram and we see this line here this line represents time present to future and we have this box up here which shows the interest rate.
First what we do is we show time we represent time by putting this bracket here and we know it's going to be five years and we're going to keep everything in terms of months because that's what the calculator mode is in right now.
That's what we set it in.
We put 60 months 16 months right here which is a monthly payments are going to be and.
Then from here we know that the car loan is going to be $25,000.
The way that we showed that on the calculator table showing up arrow we put 25,000 next road now this up our represents money coming toward Sheila now why you might be thinking hey its debt it's it should be negative because anything that's negative we put with a down arrow the truth is even though she is she's not seeing the cash she's getting the benefit of this cash today because she's getting the right to buy the car because she's receiving it.
The cash flow diagram shows us as being a positive a positive occurrence towards her that she's receiving this 25,000 next we know that there's going to be there's interest on this loan of six percent and.
We do is we see this box right here we put six right there and finally we don't know if she maybe we know that the loan will get paid off at the end of 60 months.
We put a little zero that our represent everything is paid off at the end and then finally what we're solving for our payments how much our monthly payments that she will have to make every month whether we do that we just have little down arrows these are all represent payments that are coming out of Sheila's pocket to pay off the car loan we don't know how much that's going to be.
We're just going to put a little ? right next to it now the way that we go from here is we have this information here we enter it in the calculator table.
First n is the number of months in this situation we know the number of months are 60.
We will do is we'll just put 60 right there I yr stands for interest rate per year we know that yearly interest rate in this situation is six percent.
We'll just simply put a six right here pv right here is present value that's a one-time occurrence of value that happens today and today only in this situation that one-time occurrence would be she live receiving that $25,000.
We're going to do is put 25 right there.
Now and that's like I said that's positive because she's receiving the benefit that $25,000 today payments we don't know what they are we know they're going to be negative but we just don't know how much.
We will put as a question mark right here for that future value is the future value is a one-time occurrence that happens sometime out in the future it happens one time and one time only and here we know that in 60 months the loan will be completely paid off.
That'll be zero.
That means once everything is paid off in this situation 20 now that we have these four things we're solving for payments to do that we need the calculator now if you'll see the calculator has the buttons at the top of the calculator exactly match up to the cash flow excuse me the calculator table we have here.
Now what we do is we just simply enter into the numbers into the calculator and the calculator will do the work force.
First n we solve for take 60 and then we just hit n now it's entered into the end from 16 months interest rate per year interest rate per year.
We just put 6 there now let's enter it into the calculator present value is 25,000 remember 25,000 that's the size of the loans 25 present value payments we don't know that's what we're solving for.
We're going to skip that future value we know is 0. This is a lonely paid off at the end of 60 months.
We put 0 future value now that we know for simply stop press the payment button in the calculator will solve for the fifth 483 dollars and thirty-two cents and you'll notice it's negative.
That means it's leaving Sheila's pocket.
That means in this situation that if Sheila got a car loan of $25,000 fully amortized over 60 months or five years at six percent interest the monthly payments that she would have to make on that loan will be 483 dollars and thirty-two cents thank you very much for your time if you want to learn more or find about future classes that I'm teaching please visit my website wwbd broom calm and thank you thank you once again for your time and I look forward to connecting with you soon bye bye.