How your car payment is calculated
The amount you borrow is the car price, minus your down payment and trade-in value, plus anything you still owe on the trade-in — and, if you finance them, sales tax and fees. The monthly payment then uses the standard loan formula:
where L is the loan amount, r is APR ÷ 12 and n is the number of months.
Example: a $35,000 car with $5,000 down, 7% sales tax and $1,200 in fees financed at 7% APR for 60 months gives a loan of about $33,650 and a payment of about $666 a month.
How much car can I afford?
A popular guideline is the 20/4/10 rule: put at least 20% down, finance for no more than 4 years, and keep total car costs (payment, insurance and fuel) under 10% of your gross monthly income. It's strict, but it keeps you from owing more than the car is worth.
Why longer loans cost more
Stretching a loan to 72 or 84 months lowers the monthly payment, but you pay interest for longer and often at a higher rate. Cars also lose value quickly, so on a long loan you can end up "upside down" — owing more than the car is worth. The comparison table shows the extra interest for each term.
Tips to get a better auto loan
- Get pre-approved by a bank or credit union before visiting the dealer, so you have a rate to compare.
- Negotiate the car price first, then discuss financing. Focusing only on the monthly payment hides the total cost.
- Check your credit score. Rates for excellent credit can be less than half those for fair credit.
- Watch for add-ons like extended warranties and paint protection rolled into the loan.
- Sales tax rules vary. Most US states tax the price after deducting the trade-in, but some don't. Check your state's rule.
Frequently asked questions
What is a good APR for a car loan?
It depends on your credit score, the loan term and whether the car is new or used. Borrowers with excellent credit get the lowest rates; check current offers from banks and credit unions before accepting dealer financing.
Is it better to pay sales tax up front or finance it?
Paying taxes and fees up front means you borrow less and pay less interest. Untick "Include taxes and fees in the loan" to see the difference.
How much should I put down on a car?
Around 20% for a new car and 10% for a used car helps you avoid owing more than the car is worth.
Does this calculator work for leases?
No. Leases are calculated differently (residual value and money factor). This calculator is for car purchase loans.
