How is the auto loan amount calculated?

The financed amount is calculated as: (Vehicle Price - Down Payment - Trade-in Value) x (1 + Sales Tax Rate). Sales tax is applied to the net amount after subtracting the down payment and trade-in from the vehicle price. This financed amount is then used to calculate your monthly payment.

What loan term should I choose for a car?

Shorter loan terms (24-48 months) have higher monthly payments but lower total interest. Longer terms (60-84 months) reduce monthly payments but cost more in total interest and may lead to being 'upside down' on the loan, where you owe more than the car is worth. Financial experts generally recommend keeping auto loans to 60 months or less.

Does a trade-in reduce my car loan?

Yes, your trade-in value is subtracted from the vehicle price before the loan amount is calculated. A higher trade-in value means a smaller loan, lower monthly payments and less total interest paid. In many states, trading in a vehicle also reduces the taxable amount, potentially saving you sales tax.

Is it better to make a larger down payment on a car?

A larger down payment reduces the amount you need to finance, resulting in lower monthly payments and less total interest. It also reduces the risk of being upside down on your loan. Most experts recommend putting at least 20% down on a new car and 10% on a used car to minimize long-term costs.

Auto Loan Calculator

Calculate your monthly car payment, total interest and total cost of ownership.

Vehicle Price ($)

Down Payment ($)

Trade-in Value ($)

Loan Term (months)

Interest Rate (% p.a.)

Sales Tax (%)

Monthly Payment

Loan Amount (after tax)

Total Interest

Total Cost

How Auto Loan Payments Are Calculated

An auto loan allows you to spread the cost of a vehicle over monthly payments instead of paying the full price upfront. Lenders charge interest on the financed amount, and the total you repay depends on the loan term, interest rate and the amount you finance. Understanding these factors helps you negotiate better deals and avoid overpaying for your next vehicle.

Calculating the Financed Amount

The loan amount is not simply the sticker price. First, the down payment and any trade-in value are subtracted from the vehicle price. Then, sales tax is applied to the net amount. The formula is: Loan = (Price − Down Payment − Trade-in) × (1 + Tax Rate). This financed amount is what you actually borrow and pay interest on over the loan term.

Choosing the Right Loan Term

Auto loans typically range from 24 to 84 months. A shorter term means higher monthly payments but substantially less total interest. For example, a 36-month loan on a $30,000 vehicle might cost $2,000 in interest, while a 72-month loan on the same amount could cost over $6,000. Longer terms also increase the risk of owing more than the car is worth as it depreciates.

Use this calculator to experiment with different combinations of down payment, trade-in value and loan term to find the monthly payment that fits your budget while minimizing total cost.

Formula

PMT = P × [r(1 + r)ⁿ] / [(1 + r)ⁿ − 1]

Where:

PMT = monthly auto loan payment
P = loan amount (vehicle price − down payment − trade-in value)
r = monthly interest rate (annual rate ÷ 12)
n = total number of monthly payments

Example Calculation

Scenario: $35,000 car, $5,000 down payment, 6.9% interest rate, 60-month term

Step 1: Loan amount P = $35,000 − $5,000 = $30,000
Step 2: Monthly rate r = 6.9% ÷ 12 = 0.00575
Step 3: PMT = $30,000 × [0.00575(1.00575)⁶⁰] / [(1.00575)⁶⁰ − 1]
Result: Monthly payment = $593.16 | Total interest paid = $5,589.60

This calculator is for informational purposes only and does not constitute financial, tax, or legal advice. Always consult a qualified professional for decisions specific to your situation.