How the Auto Loan Calculator Works
When you finance a car, the price on the window is not the amount you borrow. Sales tax and fees are usually added, and your down payment and trade-in are taken off. If you still owe money on your old car, that is added too. The Auto Loan Calculator works out the amount you borrow, your monthly payment, and the total interest, so you can compare loans before you sign.
What you enter
- Car price: the price you agree with the seller.
- Down payment: the cash you pay up front.
- Trade-in value: what the seller gives you for your old car.
- Still owed on the trade-in: if your old car has a loan, the balance you still owe. It is added to the new loan.
- Sales tax: the rate, and whether it is charged on the full price or on the price after the trade-in. This depends on where you live.
- Fees: title, registration and dealer fees that you add to the loan.
- Interest rate and term: the yearly rate, and the number of months. Common terms are 36, 48, 60 and 72 months.
How the results are worked out
First the amount you borrow, then the payment. Here r is the monthly rate (the yearly rate divided by 12) and n is the number of months:
sales tax = taxable price x tax rate amount borrowed = price + tax + fees + owed on trade-in - down payment - trade-in value payment = amount borrowed x r / (1 - (1 + r)^-n) total interest = payment x n - amount borrowed
Each month, the interest is the balance times r. The rest of the payment reduces the balance. Early on the balance is large, so most of the payment is interest. Later, most of it pays off the loan.
A worked example
A car costs $32,000. You pay $4,000 down, with no trade-in. The sales tax is 6% of the price, and the fees are $600. The loan is 7.5% for 60 months.
| Result | Amount |
|---|---|
| Sales tax ($32,000 x 6%) | $1,920.00 |
| Amount borrowed ($32,000 + $1,920 + $600 - $4,000) | $30,520.00 |
| Monthly payment | $611.56 |
| Total of the 60 payments | $36,693.49 |
| Total interest | $6,173.49 |
| Full cost of the car with interest ($32,000 + $1,920 + $600 + $6,173.49) | $40,693.49 |
Year by year
| Year | Pays off the loan | Interest | Still owed |
|---|---|---|---|
| 1 | $5,227 | $2,112 | $25,293 |
| 2 | $5,633 | $1,706 | $19,660 |
| 3 | $6,070 | $1,269 | $13,590 |
| 4 | $6,541 | $797 | $7,049 |
| 5 | $7,049 | $290 | $0 |
Chart: interest paid each year
Year 1 ██████████████████████████████████████████ $2,112 Year 2 ██████████████████████████████████ $1,706 Year 3 █████████████████████████ $1,269 Year 4 ████████████████ $797 Year 5 ██████ $290
The calculator draws each year as a bar, with the part that pays off the loan in green and the interest in amber. You can see the amber part shrink as the loan goes down.
A longer loan costs more
A longer term gives a lower payment, but you pay much more interest. The same $30,520 loan at 7.5%:
| Term | Monthly payment | Total interest |
|---|---|---|
| 36 months | $949.36 | $3,657.02 |
| 48 months | $737.94 | $4,901.12 |
| 60 months | $611.56 | $6,173.49 |
| 72 months | $527.69 | $7,473.98 |
| 84 months | $468.12 | $8,802.43 |
Going from 60 to 84 months lowers the payment by about $143, but adds about $2,629 in interest. A long loan also means you owe more than the car is worth for longer, because cars lose value quickly.
Tips
- Put more down. It lowers the loan, the interest and the risk of owing more than the car is worth.
- Choose the shortest term you can afford. Many advisors suggest 48 months or less for a car.
- Get an offer from a bank or credit union first. It gives you a rate to compare with the dealer's offer.
- Look at the total, not only the payment. A low payment on a long loan can cost thousands more.
- Add insurance, fuel and repairs to your budget. They come on top of the loan payment.
What this calculator does not include
- Loan fees that are charged in a different way, and any penalty for paying the loan off early.
- Rebates, dealer add-ons, extended warranties and gap insurance.
- A rate that changes during the loan.
- Insurance, fuel, repairs, and yearly registration or property tax.
This tool gives an estimate for general information only. It is not financial advice. Your lender's offer sets the real rate, fees and payment.