Auto Loan Calculator
How This Calculator Works
Loan Amount = (Vehicle Price - Down Payment - Trade-In) x (1 + Sales Tax Rate)
Monthly Payment (M) = P [ r(1+r)^n ] / [ (1+r)^n - 1 ]
Where:
P = Loan amount (after down payment, trade-in, and tax)
r = Monthly interest rate (annual rate / 12)
n = Loan term in months
Total Interest = (M x n) - P
Total Cost = M x nThe auto loan calculator helps you estimate your monthly car payment and total loan cost before you set foot in a dealership. It accounts for the unique aspects of vehicle financing that a generic loan calculator misses: down payment, trade-in value, and sales tax — all of which directly affect the amount you actually finance.
How the Loan Amount Is Calculated
Unlike a simple loan where you borrow a fixed amount, an auto loan starts with the vehicle price and subtracts your down payment and trade-in value to determine the net amount. Sales tax is then applied to this net amount (in most states, you only pay tax on the difference between the purchase price and your trade-in). The resulting figure is your total financed amount, and this is the principal used for calculating your monthly payment.
For example, if you are buying a $35,000 vehicle with a $5,000 down payment and a $3,000 trade-in in a state with 7% sales tax: the net price is $27,000, sales tax is $1,890, and the total loan amount is $28,890. This is the amount on which your monthly payment and interest charges are calculated.
Understanding the Monthly Payment
Once the loan amount is determined, the calculator uses the standard amortization formula to compute your fixed monthly payment based on the interest rate and loan term. Each payment is split between interest on the remaining balance and principal repayment. In the early months, interest accounts for a larger share; as the balance decreases, more of each payment goes toward principal.
The loan term has a dramatic effect on both your monthly payment and total cost. A 60-month (5-year) loan on $28,890 at 6.5% has a monthly payment of $565 and total interest of $5,010. Extending to 72 months drops the payment to $487 but increases total interest to $6,164. An 84-month loan drops it further to $433 but costs $7,396 in interest. You pay $2,386 more in interest for the privilege of a $132 lower monthly payment.
Reading the Charts
The pie chart breaks down the total cost of your vehicle into three clear components: the principal (the actual vehicle cost you financed), interest charges over the life of the loan, and sales tax. This visualization helps you see the true cost beyond the sticker price. The line chart shows your remaining loan balance declining over time, giving you a clear picture of your payoff trajectory.
Tips for Getting the Best Auto Loan
Always get pre-approved for an auto loan from your bank or credit union before visiting a dealership. This gives you a benchmark rate to compare against dealer financing offers. Dealers often mark up the interest rate from the lender and keep the spread as profit, so having your own financing in hand puts you in a stronger negotiating position.
Aim for the shortest loan term you can comfortably afford. While 72- and 84-month loans are increasingly common, longer terms mean you spend more time "underwater" — owing more on the loan than the car is worth. This creates financial risk if you need to sell or if the car is totaled. A good rule of thumb is to keep your total monthly transportation costs (payment + insurance + fuel + maintenance) below 15-20% of your take-home pay.
New vs. Used: The Financing Difference
Interest rates for used cars are typically 1-2% higher than for new cars because used vehicles are considered riskier collateral. However, used cars cost less, so you may still pay less total interest. A $20,000 used car at 7.5% over 48 months costs $3,185 in interest, while a $35,000 new car at 5.5% over 60 months costs $4,904 in interest. Always run the numbers for both scenarios to make an informed decision.
Frequently Asked Questions
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What You Should Know
Smart Car Buying: A Financial Guide
For most Americans, a car is the second-largest purchase they will make after a home. The average new car price in the US is now over $48,000, and even used cars average around $27,000. Understanding the financial mechanics of auto financing can save you thousands of dollars and prevent costly mistakes.
The 20/4/10 Rule
A widely recommended guideline for car buying is the 20/4/10 rule: put at least 20% down, finance for no more than 4 years, and keep total monthly transportation costs (payment, insurance, gas, maintenance) below 10% of your gross monthly income. While this rule is conservative, it helps ensure your car purchase fits comfortably within your overall financial picture and prevents you from becoming "car poor" — spending so much on transportation that other financial goals suffer.
The True Cost of Ownership
The purchase price and loan payment are just the beginning. The true cost of owning a car includes depreciation (the biggest cost — new cars lose 20-30% of their value in the first year), insurance premiums, fuel costs, routine maintenance, tires, registration and inspection fees, and parking. A car costing $35,000 to purchase may cost $50,000-$60,000 to own over five years when all expenses are included.
Depreciation is particularly important to understand because it is an invisible cost that does not show up on any monthly bill. A new $35,000 car may be worth only $24,500 after one year and $18,000 after three years. This is why many financial advisors recommend buying a 2-3 year old used car that has already absorbed the steepest depreciation while still having most of its useful life ahead.
Negotiating at the Dealership
When negotiating your car purchase, always negotiate the purchase price separately from the trade-in value and financing. Dealers often use the "four-square" technique, mixing these elements together to obscure the actual deal. Start by agreeing on the out-the-door price of the vehicle, then separately negotiate your trade-in, and finally compare the dealer's financing to your pre-approved loan. This approach gives you the clearest picture of each component and prevents one element from subsidizing another.
Electric Vehicles and Financing
The growing electric vehicle market introduces additional financial considerations. EVs typically have lower fuel and maintenance costs but higher purchase prices. Federal tax credits of up to $7,500 for new EVs (and $4,000 for used) can significantly reduce the effective cost. Some lenders offer special EV financing rates, and many states offer additional incentives. When comparing an EV to a gas vehicle, factor in fuel savings ($1,000-$2,000/year), reduced maintenance costs (no oil changes, fewer brake replacements), and any available tax credits alongside the purchase price difference.