Auto Loan Calculator

What the auto loan calculator does

Before you sign for a car, the one number you really want is the monthly payment, and right behind it, what the whole thing costs you in interest. This tool works both out. You give it the price of the car, the cash you are putting down, your trade-in, the sales tax, the interest rate, and the loan term, and it tells you your monthly payment, the amount you are actually financing, and the total interest you will pay over the life of the loan.

It is built to take the real pieces of a car deal, not just a bare loan amount, so the payment it shows reflects the deal as you would actually sign it.

How to use it

1. Vehicle Price. The agreed price of the car.
2. Money You Have. Your down payment, the cash you are putting in up front.
3. Trade-in Value. What your old vehicle is worth toward the deal, or zero if you are not trading one in.
4. Sales Tax. The tax rate that applies to the purchase.
5. Interest Rate. The yearly rate on the loan.
6. Loan Term. How long you will take to pay it back, in months, years, or a mix of both.

Press Calculate for your payment, or Reset to clear the boxes.

How the loan amount is built

The payment is only as good as the amount you are borrowing, so the tool builds that first. It starts from the price, subtracts your down payment, and subtracts your trade-in, with the sales tax applied against the trade-in figure. What is left is the amount you finance:

Loan amount = price − down payment − trade-in (after sales tax)

One honest note here. How sales tax is applied to a car purchase, and to a trade-in, genuinely varies from one place to another, since some regions tax the full price and others give you a tax break on the trade-in. So treat the loan amount as a close estimate, and check how tax is handled where you are buying if you need the figure to the dollar.

How the monthly payment is worked out

Once it has the loan amount, the tool uses the standard formula that every lender uses for a fixed monthly payment loan. In plain terms, it spreads the loan plus its interest into equal monthly payments, so the payment is:

Monthly payment = loan amount × r ÷ (1 − (1 + r)⁻ⁿ)

where r is the monthly interest rate, which is your yearly rate divided by 12, and n is the number of months. This is called amortization. Each payment you make is split in two, one part covers that month's interest and the rest chips away at the principal. Early on, more of your payment goes to interest, and as the balance shrinks, more goes to principal. The total interest the tool reports is simply all your payments added up, minus the amount you borrowed.

An example with real numbers

Say the car is 30,000, you put 5,000 down, trade in a car worth 8,000, the sales tax is 6 percent, the rate is 7 percent, and the term is 60 months.

• Trade-in after 6 percent tax = 8,000 − 480 = 7,520
• Loan amount = 30,000 − 5,000 − 7,520 = 17,480
• Monthly payment works out to about 346
• Total interest over the 60 months is about 3,286

So you would be financing 17,480, paying about 346 a month, and handing over roughly 3,286 in interest by the end. That last number is the real price of borrowing, and it is the one worth keeping an eye on.

The rate you enter and the APR you actually pay

This is worth understanding before you compare offers. The interest rate you type in is the cost of borrowing the money, and that is what this tool uses. The APR, the annual percentage rate, is a broader figure, because it folds in the lender's fees on top of the interest, so it is usually a little higher than the plain rate. Because every lender is required to disclose the APR, it is the fairer number for comparing one loan against another. So use this calculator to estimate the payment from a rate, but when you are choosing between lenders, compare their APRs to each other, not a rate from one against an APR from another.

Why a longer loan is not always the cheaper one

It is tempting to stretch the term to get the monthly payment down, and the lower monthly figure looks like a win. Run it through the tool both ways, though, and you will see the catch. A longer loan lowers each payment but raises the total interest, because you are borrowing the money for longer. A longer term also keeps you at risk of owing more than the car is worth for longer, since cars lose value faster than a stretched loan pays down. There is nothing wrong with a longer term if a lower payment is what your budget needs, but go in seeing both numbers, the monthly and the total, rather than only the one the salesperson points at.

Questions people ask

How is my car payment calculated?

The tool works out the amount you are financing, then spreads that plus interest into equal monthly payments using the standard amortization formula. The payment depends on the loan amount, the interest rate, and the number of months.

Should I compare the interest rate or the APR?

Compare APRs. The interest rate leaves out lender fees, while the APR includes them, so the APR is the truer cost of a loan. Just be sure you are comparing APR to APR across lenders.

Does a bigger down payment really help?

Yes. A larger down payment lowers the amount you finance, which lowers both your monthly payment and the total interest, and it reduces the chance of owing more than the car is worth early on.

Will this match my lender's figure exactly?

It will be very close, but treat it as an estimate. Your real offer depends on your credit, the lender's fees, and how sales tax is handled in your area, so confirm the final numbers on the paperwork before you sign.

References

1. Consumer Financial Protection Bureau (CFPB), Auto loans consumer resources. https://www.consumerfinance.gov/consumer-tools/auto-loans/
2. Consumer Financial Protection Bureau (CFPB), What is a Truth-in-Lending disclosure for an auto loan? (interest rate and APR). https://www.consumerfinance.gov/ask-cfpb/what-is-a-truth-in-lending-disclosure-for-an-auto-loan-en-787/