How to use the auto loan calculator
Enter the price you agreed for the car, then your down payment and, if you are trading in a vehicle, its trade-in value and how much you still owe on it. Add your sales tax rate and any title, registration and dealer fees, and choose whether those are paid upfront or added to the loan. Finally enter the APR from your loan offer and the term.
The calculator works out the amount financed and your fixed monthly payment, then shows total interest, the cash due at signing and the full cost of the car. In the default example, a $35,000 car with $5,000 down, a $8,000 trade-in with $3,000 still owed, 7% sales tax and $800 of fees comes to $27,690.00 financed. At 7% APR for 60 months the payment is $548.30 and the total interest is $5,207.71.
How the car payment is calculated
Most US auto loans are simple-interest installment loans with a fixed rate. Each month, interest is charged on the remaining balance at the APR divided by 12, and the rest of the payment pays down the principal. The payment formula is Payment = P × r × (1 + r)n ÷ ((1 + r)n − 1), where P is the amount financed, r the monthly rate and n the number of payments.
For a simple $30,000 loan at 6% for 60 months, the payment is $579.98. In the main example, the first payment of $548.30 is $161.53 of interest and $386.77 of principal; later payments go more and more to principal. The yearly and monthly amortization schedules above show every payment.
Trade-ins, negative equity and sales tax
Your trade-in equity is its value minus what you still owe. In the example, an $8,000 trade-in with $3,000 owed gives $5,000 of equity, which lowers the loan like a down payment. If you owe more than the car is worth, the difference is negative equity and is usually added to the new loan: owing $11,000 on the same trade-in raises the amount financed to $35,690.00 and the payment to $706.70.
Sales tax rules for trade-ins vary by state. Most states charge sales tax only on the price minus the trade-in value, which is what the checkbox assumes. Some do not: California, for example, taxes the full selling price (CDTFA). In the example, losing the trade-in credit raises the sales tax from $1,890.00 to $2,450.00 and the payment to $559.38. Check your state's motor vehicle or revenue department for the rate and rules where you register the car.
How much to put down
A bigger down payment lowers the amount financed, the payment and the interest, and it makes it less likely that you will owe more than the car is worth. In the example, raising the down payment from $5,000 to $10,000 cuts the payment from $548.30 to $449.29 and saves $940.36 of interest over 60 months. A common rule of thumb is about 20% down on a new car and 10% on a used one, but any amount helps.
Keep some cash in reserve for insurance, registration renewals and repairs, which are not part of the loan. A dealer discount lowers the price you enter, while a trade-in or cash down payment lowers the amount you finance. If you have a manufacturer rebate, whether it reduces the taxable price depends on your state, so enter it as a down payment unless you know it is tax-free.
Choosing a loan term
A longer term lowers the monthly payment but adds interest, and it keeps you owing more than the car is worth for longer as the car loses value. In the example, 36 months costs $854.99 a month and $3,089.53 of interest, while 72 months drops the payment to $472.09 but raises interest to $6,300.26. The table above compares common terms.
The rate matters as much as the term. On the same loan, 5% APR gives $522.54 a month and 9% gives $574.80, a difference of $3,135.26 in interest over five years. Getting a preapproval from a bank or credit union before visiting the dealer gives you a rate to compare with the dealer's financing.
Paying tax and fees upfront
Rolling sales tax and fees into the loan means less cash at signing, but you pay interest on them. Paying the $1,890.00 of tax and $800 of fees upfront in the example lowers the amount financed to $25,000.00 and the payment to $495.03, and saves $505.91 of interest, but the cash due at signing rises to $7,690.00.
Before you sign, compare the amount financed, APR, finance charge and total of payments on the lender's Truth in Lending disclosure with this estimate. To check that the payment fits your budget, use the paycheck calculator to estimate your take-home pay. Buying a car in India? The car loan EMI calculator works in rupees.