We take the price of the car, deduct any deposit you’re paying (which could be from a part exchange), then add interest based on the number of years you’re spreading the cost (anything from 1-5 years). The remaining figure is divided by the term of the agreement.
Here's an example:
Let's say you want to buy a car costing £5000 and you can pay a deposit of £500. This leaves £4500 left to pay. If you decide you can pay over 3 years, let’s say the interest on the amount you’re borrowing is £400, so the total you’re paying back is £4900. Divide by the number of months, in this case 36, and you have a fixed monthly payment of £136.11. Nice and simple.