How an auto loan payment is calculated
An auto loan is repaid in equal monthly payments. The payment depends on the amount financed, the interest rate (APR) and the term. This calculator adds sales tax to the price, subtracts your down payment and trade-in, and finances the rest.
Payment = amount × i ÷ (1 − (1 + i)−n), where i = APR ÷ 12 and n = number of months.
Why the loan term matters
A longer term lowers the monthly payment but raises the total interest, because you borrow for longer. It also raises the risk of owing more than the car is worth. The comparison table shows the payment and total interest for each common term on the same loan.
Ways to lower the cost
- Get pre-approved by a bank or credit union and compare it with dealer financing before you negotiate.
- Make a larger down payment to reduce the amount financed and the interest paid.
- Choose the shortest term whose payment fits your budget.
- Negotiate the price of the car separately from the financing.
What this estimate leaves out
Sales tax rules differ by state: some tax the full price, others tax the price minus the trade-in. Registration, title and documentation fees are not included, and neither are insurance or maintenance. Your lender’s actual quote is what counts. To check whether the payment fits your overall finances, read about the debt-to-income ratio on the CFPB website.
Frequently asked questions
How is an auto loan payment calculated?
The lender takes the amount financed, the monthly interest rate (APR divided by 12) and the number of months, and finds the equal payment that pays the loan off exactly. This calculator uses that standard formula.
What loan term should I choose?
The shortest one whose payment fits your budget. Longer terms lower the payment but increase total interest and the chance of owing more than the car’s value. The comparison table shows the trade-off.
Is sales tax included?
Yes. The calculator applies the tax rate you enter to the price minus your trade-in, and finances it with the loan. Tax rules vary by state, so adjust the rate or set it to 0 if tax is paid separately.
Does a bigger down payment help?
Yes. It lowers the amount financed, the monthly payment and the interest you pay, and helps you avoid owing more than the car is worth.
What is a good auto loan rate?
It depends on your credit profile, the loan term, and whether the car is new or used. Compare offers from banks, credit unions and dealers before choosing, and look at the total cost, not just the payment.
Sources
This tool is for general information and illustration. It is not personalized advice. Confirm the figures with a qualified professional. See our editorial standards.
