How your car payment is calculated
The amount you finance is the out-the-door price minus what you pay up front:
That amount is then amortized over the term like any fixed-rate loan:
where A is the amount financed, r the monthly rate (APR ÷ 12) and n the term in months. Most states charge sales tax on the price after subtracting the trade-in, which is how this calculator works; a few states tax the full price.
Example
A $35,000 car with 8% sales tax and $5,000 down leaves $32,800 to finance. At 6.5% for 60 months, the payment is $641.77 and total interest is about $5,706.
Tips for a cheaper car loan
- Get pre-approved by a bank or credit union before visiting the dealer so you can compare their financing.
- Negotiate the price of the car first, then the trade-in, then financing — separately.
- Keep the term to 60 months or less; 72–84 month loans often leave you owing more than the car is worth.
- The 20/4/10 rule of thumb: 20% down, no more than 4 years, and total car costs under 10% of gross income.
Related Vehicle & Installment Financing Tools
Vehicle financing decisions should balance monthly payments against total interest paid. Compare standard installment terms using our Loan Calculator, determine the interest-saving power of upfront cash via the Down Payment Calculator, audit hidden financing charges with the APR Calculator, and ensure transportation costs fit within the 10% rule using our Budget Calculator.
Frequently asked questions
Should I roll taxes and fees into the loan?
You can, but you'll pay interest on them for the whole term and start the loan owing more than the car's value. Paying tax and fees in cash is cheaper if you can afford it.
What if I owe more on my trade-in than it's worth?
That negative equity is added to the new loan. Enter the amount owed under “Taxes, fees & trade-in” to see its effect; it raises both the payment and the interest.
What is a good auto loan rate?
Rates depend mostly on credit score and whether the car is new or used. Borrowers with excellent credit typically get the lowest new-car rates, while used-car and subprime loans can cost several times more. Always compare at least two lenders.