Car Loan Calculator

How a car loan is built, and the formula behind it

A car loan payment uses the same amortizing formula as a mortgage: M = P × [ r(1 + r)ⁿ ] ÷ [ (1 + r)ⁿ - 1 ]. P is the amount financed, r is the annual rate divided by 12, and n is the number of months. The part that catches people is P, because it is not the sticker price.

Four things move between the sticker and the loan:

On a $32,000 car with $4,000 down, 6.5% tax and $600 in fees, the amount financed is $32,000 + $2,080 + $600 - $4,000 = $30,680. At 7.5% over 60 months the payment is $614.76, the interest is $6,206 and the total is $36,886.

The rate is where the dealer makes its money. A three point swing on a $30,680 loan over 60 months is about $2,500 in extra interest, which is more than most people negotiate off the sticker price.

Down payment, trade-in and rebate: three ways to cut the loan

Each of the three cuts the amount financed, and each one works differently in practice.

Down payment is cash you bring. It cuts the loan dollar for dollar and lowers the monthly payment. On the $32,000 car, going from $4,000 down to 20% down ($6,400) drops the loan from $30,680 to $28,280 and the payment from $614.76 to $566.67.

Trade-in is your old car handed over. In most states sales tax is charged on the price minus the trade-in, so a trade-in saves tax as well as loan. A $3,000 trade-in on a $25,000 car in a 6% state removes $180 of tax on top of the $3,000 of loan.

Rebate is money from the manufacturer. It cuts the amount financed just like cash, but it is not your money, so it does not build equity. A $1,500 rebate on the $32,000 car drops the loan to $29,180 and the payment to $584.71, a saving of $30.05 a month and $304 over the term.

The ordering matters at the dealer. Take the rebate and pay cash for the rest, or take the low-rate financing, but not both. Dealers price the two together, and the 0% loan usually means giving up a rebate worth more than the interest saved.

Worked examples across price ranges

These four cases cover a used car, a new mid-size car, an expensive new car and a 0% promotion. Run each through the calculator and the figures match.

The third row is the trap in plain sight. A $45,000 car with $9,000 down still costs $652.70 a month for six years, and the interest is $7,044 even at 5.5%. The fourth row shows why a 0% promotion beats a small rebate: the same $20,000 over 36 months at 7.5% would cost $622.14 a month and $2,397 in interest.

The second row is the reference case. A $614.76 payment is 57% higher than the $391.53 payment in row one, mostly because the amount financed is $10,860 larger and the term is the same.

Term length: the real trade-off

Dealers push long terms because they lower the payment and sell more car. The table shows what that costs, holding the $30,680 loan at 7.5%.

Going from 36 to 72 months cuts the payment from $954.34 to $530.46, a saving of $423.88 a month. It also more than doubles the interest, from $3,676 to $7,513, and keeps you owing more than the car is worth for three and a half years.

Being upside down matters because cars are damaged and totaled. If the loan is larger than the car's value and the car is written off, insurance pays the value and you cover the gap out of pocket. That is the risk a 72-month loan buys, and it is why 48 to 60 months is the common advice for a new car.

What the payment leaves out

The monthly loan payment is not the monthly cost of the car. Four things sit outside it.

Insurance. A lender requires full coverage on a financed car. A young driver on a new car can pay $250 a month or more, which is close to the loan payment itself.

Fuel. At $3.50 a gallon, a car doing 12,000 miles at 30 mpg burns about $117 a month. A truck at 18 mpg burns about $195.

Maintenance and tires. Budget $500 to $1,000 a year for an older car and $300 to $600 for a new one under warranty.

Depreciation. A new car typically loses 20% of its value in the first year and about 60% over five years. On a $32,000 car that is $6,400 in year one, or $533 a month of value that walks away.

Add those four to a $614.76 loan payment and the real cost of a $32,000 car runs well past $1,000 a month. The calculator shows what the loan costs; the rest is your own budget. The Consumer Financial Protection Bureau's auto loan tools cover dealer financing and add-on products, the Federal Trade Commission's car buying guide explains negotiating and financing separately, and the Federal Reserve's consumer credit data tracks the average auto loan rate. This page is an estimate, not financial advice.