How is the auto loan amount calculated?

The financed amount is calculated as (Vehicle Price - Down Payment - Trade-in Value) multiplied by (1 + Sales Tax Rate). Sales tax is applied to the net purchase amount after subtracting the down payment and trade-in from the vehicle price. In most states, the trade-in reduces the taxable amount, so you pay sales tax only on the price difference. For example, buying a $35,000 car with a $10,000 trade-in means you pay sales tax on $25,000, not $35,000. The financed amount is then used with the standard amortization formula to calculate your monthly payment based on the interest rate and loan term.

What loan term should I choose for a car?

Financial experts recommend keeping auto loans at 60 months or shorter. On a $30,000 loan at 6.5%, choosing 48 months costs $4,128 in total interest, while 72 months costs $6,504 -- that is $2,376 more for the same car. Longer terms also dramatically increase the risk of negative equity (owing more than the car is worth) since vehicles typically depreciate 15-25% in the first year and about 10% per year after that. If you cannot afford the monthly payment on a 60-month term, consider a less expensive vehicle or a larger down payment rather than stretching the loan term.

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 $10,000 trade-in on a $35,000 car means you finance $25,000 instead of $35,000, reducing your monthly payments and total interest. In 42 of 50 US states, the trade-in also reduces the taxable amount, saving you 5-10% of the trade-in value in sales tax. For example, with a 7% sales tax, a $10,000 trade-in saves you $700 in taxes. However, know your trade-in's value before visiting the dealer using tools like Kelley Blue Book or Edmunds to ensure you get a fair offer.

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

A larger down payment reduces the financed amount, lowers your monthly payment, decreases total interest, and protects against negative equity. Most experts recommend 20% down on a new car and 10% on a used car. On a $35,000 new car at 6.5% for 60 months, a $7,000 down payment (20%) versus $3,500 (10%) saves $1,232 in total interest and reduces the payment by about $70/month. Additionally, lenders often offer lower interest rates to borrowers with larger down payments because the loan-to-value ratio is lower, making the loan less risky. At minimum, cover the sales tax and fees with cash so you do not finance them.

How much car can I afford?

A common guideline is to keep total vehicle costs (loan payment + insurance + fuel + maintenance) below 15-20% of your gross monthly income. For the loan payment alone, many financial advisors suggest staying under 10% of gross income. If you earn $60,000/year ($5,000/month), your car payment should be no more than $500-700/month. Use the 20/4/10 rule as a benchmark: 20% down payment, 4-year (48-month) maximum loan term, and total transportation costs under 10% of gross income. This conservative approach prevents car payments from crowding out savings, retirement contributions, and other financial goals.

Auto Loan Calculator

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

Quick Answer

An auto loan payment is calculated with M = P[r(1+r)^n]/[(1+r)^n-1], where P is the amount financed, r is the monthly APR, and n is the number of months. A $30,000 auto loan at 7% APR over 60 months costs about $594 per month per Consumer Financial Protection Bureau guidance.

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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 Work

An auto loan is an installment loan used to finance the purchase of a vehicle, where the car itself serves as collateral. According to the Federal Reserve, outstanding motor vehicle loans in the United States totaled $1.63 trillion as of Q4 2024, with the average new car loan amount reaching $40,290 according to Experian's State of the Automotive Finance Market report. The average monthly payment for a new car was $734 in Q4 2024, while used car payments averaged $525.

This calculator helps you estimate your monthly payment by factoring in the vehicle price, down payment, trade-in value, sales tax, interest rate, and loan term. Understanding how each variable affects your total cost allows you to negotiate better terms and avoid overpaying. Use our APR calculator to compare the true cost of different loan offers, and our amortization calculator to see a full payment schedule.

The Auto Loan Payment Formula

Auto loan payments are calculated using the standard amortization formula. First, calculate the financed amount, then apply the payment formula:

Financed Amount = (Price − Down Payment − Trade-in) × (1 + Tax Rate)
PMT = P × [r(1 + r)ⁿ] / [(1 + r)ⁿ − 1]

Where:

P = financed amount (principal)
r = monthly interest rate (annual rate / 12)
n = total number of monthly payments

Worked example: A $35,000 vehicle with $5,000 down payment, no trade-in, 7% sales tax, at 6.9% interest for 60 months. Financed amount = ($35,000 - $5,000) x 1.07 = $32,100. Monthly rate = 0.00575. Payment = $32,100 x [0.00575(1.00575)^60] / [(1.00575)^60 - 1] = $634.68/month. Total paid = $38,081, total interest = $5,981.

Key Auto Loan Terms

Upside down / negative equity: When you owe more on the loan than the car is worth. This happens most often with long loan terms (72-84 months) and small down payments, since vehicles depreciate 15-25% in the first year.
Loan-to-value (LTV) ratio: The loan amount divided by the vehicle's value. Lenders typically prefer LTV under 125% for new cars and 100% for used cars.
GAP insurance: Covers the "gap" between what your auto insurance pays (current market value) and what you owe on the loan if the car is totaled or stolen.
Pre-approval: Getting approved for financing before visiting the dealership gives you leverage to negotiate and compare the dealer's rate against your pre-approved rate.
Dealer markup: Dealers may add 1-3% to the lender's actual rate as profit. Pre-approval helps you identify and negotiate against this markup.

Auto Loan Rates by Loan Term and Credit Score

Interest rates vary significantly based on your credit score and the loan term. According to Experian data from 2024, here are typical new car loan rates:

Credit Score	36-Month Rate	60-Month Rate	72-Month Rate
750+ (Excellent)	5.1%	5.4%	5.8%
700-749 (Good)	6.3%	6.7%	7.2%
650-699 (Fair)	8.5%	9.2%	10.1%
Below 650 (Poor)	12-18%	13-20%	14-22%

Practical Auto Loan Examples

Example 1 -- New car, good credit: You purchase a $35,000 sedan with $7,000 down (20%), no trade-in, at 5.9% for 48 months. Financed: $28,000. Payment: $657/month. Total interest: $3,536. You build positive equity immediately since the 20% down payment exceeds first-year depreciation.

Example 2 -- Used car, moderate credit: A $22,000 used vehicle with a $3,000 trade-in and $2,000 down at 8.5% for 60 months. Financed: $17,000. Payment: $348/month. Total interest: $3,880. Improve your rate by checking our credit score estimator and working to improve before applying.

Example 3 -- The cost of a longer term: Same $30,000 loan at 6.5%: a 48-month term costs $711/month and $4,128 in interest, while a 72-month term costs $507/month but $6,504 in interest -- $2,376 more. Plus, at month 36 of the 72-month loan, you likely owe more than the car is worth.

Tips for Getting the Best Auto Loan

Get pre-approved before visiting the dealer: Check rates at your bank, credit union, or online lender first. Credit unions often offer rates 1-2% lower than dealerships. Having pre-approval gives you negotiating leverage.
Aim for 20% down on new, 10% on used: This avoids negative equity and may qualify you for a lower rate. At minimum, cover sales tax and fees with cash to avoid financing them.
Keep the loan term at 60 months or less: Longer terms reduce your monthly payment but increase total interest and negative equity risk. The average new car loan term has stretched to 68 months, but this costs borrowers thousands extra.
Focus on total cost, not monthly payment: Dealers often negotiate by extending the term to lower payments, hiding thousands in additional interest. Always ask for the total cost and compare the APR across offers.
Consider certified pre-owned (CPO): CPO vehicles are 1-3 years old, have been inspected and come with manufacturer warranties, but cost 20-30% less than new. They often qualify for new-car loan rates.

Disclaimer: 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.

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