How to use the auto loan calculator
The calculator opens with a $35,000 car, $4,000 down, a $8,000 trade-in with $5,000 still owed on it, 6% sales tax and $900 of fees, financed at 7% for 60 months. Replace the figures with the numbers from your deal.
- Vehicle price: the negotiated price after rebates and before tax.
- Down payment: cash you put in at signing.
- Trade-in value and amount owed. The value is what the dealer offers for your current car. The amount owed is the payoff figure from your current lender, which the dealer pays off as part of the deal.
- Sales tax rate and fees. Use your combined state and local rate. Fees cover title, registration and the dealer’s documentation fee; enter 0 if you will pay them in cash.
- How sales tax is charged: on the price minus the trade-in, or on the full price. This depends on your state.
- Interest rate and term. Use the APR from your loan offer or pre-approval.
The results show the monthly payment, the amount financed, the interest and the total cost of the car. Below them, the chart and the table compare the same loan over 36 to 84 months.
How the amount financed and the payment are calculated
The loan covers everything you do not pay at signing:
Sales tax = Tax rate × (Price − Trade-in value) or Tax rate × PriceThe first sales tax formula applies in states that give a trade-in credit, the second in states that tax the full price.
The monthly payment then follows the standard amortization formula:
The total cost of the car adds the interest to the price, tax and fees. It equals your down payment, plus your trade-in equity, plus every loan payment.
A worked example
The car costs $35,000. Your trade-in is worth $8,000 and you owe $5,000 on it, so it brings $3,000.00 of equity into the deal.
Sales tax at 6% is charged on the price minus the trade-in, which comes to $1,620.00. Adding $900 of fees and subtracting the $4,000 down payment and the trade-in equity leaves $30,520.00 to finance, 87% of the car’s price.
At 7% over 60 months (5 years), the monthly payment is $604.33. Over the loan you pay $5,739.95 in interest, and the car costs $43,259.95 in all, once tax, fees and interest are counted.
Choosing the term
Car loans now commonly run from 36 to 84 months. The longer the term, the lower the payment, but each extra year adds interest:
| Term | Monthly payment | Total interest |
|---|---|---|
| 36 months | $942.37 | $3,405.28 |
| 60 months | $604.33 | $5,739.95 |
| 84 months | $460.63 | $8,172.80 |
These figures use the same 7% rate for every term. In practice, lenders usually charge more for 72- and 84-month loans, so the real gap is wider than the table shows.
A long term has a second cost that does not appear in the interest figure. A new car typically loses value fastest in its first few years, while a long loan is paid down slowly at first. For a stretch of the loan you can owe more than the car is worth. If the car is written off in an accident or you need to sell it, you have to cover the gap; gap insurance exists for this reason. A shorter term, or a larger down payment, keeps the loan below the car’s value sooner.
How the rate changes the cost
The rate you get depends mostly on your credit and on whether the car is new or used. For the same $30,520.00 over 60 months:
| Rate | Monthly payment | Total interest |
|---|---|---|
| 4% | $562.07 | $3,204.34 |
| 7% | $604.33 | $5,739.95 |
| 10% | $648.46 | $8,387.59 |
| 14% | $710.15 | $12,088.82 |
Getting a pre-approval from a bank or credit union before visiting the dealer gives you a rate to compare against the dealer’s financing. Dealers can arrange loans through many lenders and sometimes add a markup to the rate, so a quote in hand is useful leverage.
Negative equity and trade-in tax rules
When you owe more on your current car than it is worth, the shortfall does not disappear at trade-in. The dealer pays off your old loan and adds the difference to the new one. With a $6,000 trade-in and $10,000 owed, the amount financed rises to $37,640.00 and the payment to $745.32, compared with $547.31 if you owned that car outright. The new loan then starts well above the car’s value, which makes the next trade-in even harder.
Sales tax on trade-ins differs from state to state. Many states tax only the difference between the price and the trade-in, which can make a dealer trade-in worth more than a private sale at a slightly higher price. Others tax the full price or limit the credit. Use the switch above the rate to pick the method your state uses.
What this calculator does not include
- Rebates and incentives. Enter the price after rebates. When a maker offers a choice between a cash rebate and low-rate financing, run both.
- Add-ons: extended warranties, service plans and gap insurance financed into the loan raise the amount financed. Add them to the fees if they are part of your deal.
- Ownership costs such as insurance, fuel, maintenance and depreciation, which often cost more over the years than the interest.
- Exact tax rules. Some states charge tax on rebates, cap the trade-in credit or apply different rates to fees.
Your purchase contract and loan disclosure show the exact amount financed and APR; use this calculator to compare deals and terms before you sign.