How this works
Auto loans look like normal loans on the surface, but the financed amount is a moving target. Sales tax adds to the price (in most US states it applies to price minus trade-in), while a down payment and trade-in both subtract. Once you know what you're actually borrowing, the monthly payment is just standard amortization. Enter the sticker price, your trade-in and down-payment cash, the local sales-tax rate, and the loan terms — the calculator gives you the monthly payment, total interest, and the amount actually being financed.
The wrinkle that makes auto loans riskier than other consumer loans is depreciation. A new car loses roughly 20% of its value the moment it leaves the lot and 40–50% in the first three years (per Edmunds and Kelley Blue Book industry data). On a typical 60- or 72-month loan, the car's value falls faster than the loan balance for the first 2–3 years, so you owe more than the car is worth — a state called "underwater" or "negative equity". This matters if you total the car (insurance only pays market value, not loan balance — GAP insurance covers the gap), if you want to trade in early (negative equity rolls onto the new loan), or if your circumstances change. Larger down payments and shorter terms shrink the underwater window; longer terms (84-month loans are now ~25% of new car loans in the US) extend it.
The single most important decision in car financing is "buy vs lease". Buying gives you ownership and full residual value; leasing gives you a lower monthly payment and lets you trade up every 2–3 years, but you never build equity and mileage limits (typically 10,000–15,000/year, with $0.15–$0.30 per mile penalties beyond) can sting. As a rough heuristic: buy if you keep cars longer than 5 years, drive a lot, want to modify it, or care about total cost. Lease if you want a newer car every few years, have predictable mileage, can deduct it as a business expense, and don't mind perpetual payments. This calculator handles loans only; for leases, residual value and money factor matter more than interest rate, and the math is different enough to need its own tool.
The formula
M = monthly payment. r = monthly rate (annual ÷ 12, decimal). n = total months (years × 12). Tax rate is decimal (7% → 0.07). Many states tax only the post-trade-in amount; some tax the full sticker price. Adjust the tax field to match your state.
Example calculation
- Vehicle price $32,000, trade-in $5,000, down payment $4,000, sales tax 7%, 7.5% APR over 5 years.
- Tax = (32,000 − 5,000) × 7% = $1,890. Amount financed = 32,000 + 1,890 − 5,000 − 4,000 = $24,890.
- Monthly payment ≈ $499. Total paid ≈ $29,940. Total interest ≈ $5,050.
Frequently asked questions
Should I take the dealer's 0% offer or the manufacturer rebate?
Run both through the calculator. Take the rebate if you can finance the (lower) price elsewhere at a competitive rate; take the 0% if your alternative rate is high enough that the interest savings beat the rebate. On a $30k car, a $2,000 rebate vs. 0% APR over 5 years usually breaks even around 4–5% market interest.
Why is "amount financed" sometimes higher than the car price?
Sales tax. If your trade-in is small or zero, the tax adds 6–10% on top of the sticker price, before you subtract the down payment. With a 0 trade-in, $32,000 + 7% tax = $34,240. Subtract a $4,000 down payment and you're still financing $30,240 — slightly less than the price, in this case, but the gap closes fast as down payment shrinks.
How long should I take the loan for?
Industry standard is 5–7 years for new and 4–6 for used. Going beyond 6 years pushes monthly payments down but a typical car depreciates faster than the loan amortizes — meaning you owe more than the car is worth (negative equity) for most of the term. Stick to a term where the car is paid off well before you'd normally replace it.
Does this calculator handle leases?
No — leases use a different math (capitalized cost, residual value, money factor). This calculator is purely for purchase loans. We may add a lease calculator later; for now use a dealer-provided lease quote and verify the numbers separately.
Should I lease or buy?
Buy if any of these are true: you keep cars longer than 5 years, drive more than 15,000 miles a year, want to modify the car, or care most about lifetime cost. Lease if you want a newer car every 2–3 years, your annual mileage is predictable and under the limit, you can deduct the cost as a business expense, or you want a lower monthly payment to drive a more expensive car. Financially, buying-and-keeping is almost always cheapest over a 10-year window because you get to use the car after the loan is paid off; leasing is most expensive but most convenient. The middle option — buying and trading every 3 years — is usually the worst of both worlds.
Should I get pre-approved at my bank before going to the dealer?
Yes — it's the single best move you can make. Walking in with a pre-approval from your bank or credit union does two things: it sets a ceiling rate the dealer has to beat, and it removes one of the dealer's biggest profit centres (financing markup). Dealers earn a commission for every percentage point they add to the bank's wholesale rate ('reserve'), often 1–3%. With a pre-approval in hand, you negotiate the car price first, then either accept your bank's rate or let the dealer try to beat it. Credit unions typically offer the lowest rates; pre-approvals from major banks are valid for 30–60 days.
How does my credit score affect my auto loan rate?
Massively. Experian's quarterly State of the Automotive Finance Market report shows new-car APR varies by credit tier: super-prime (FICO 781+) ~5%, prime (661–780) ~7%, near-prime (601–660) ~10%, subprime (501–600) ~13%, deep subprime (≤500) ~16%. Used-car rates run 1–3 percentage points higher in each tier. Over a 5-year, $30,000 loan, the gap between super-prime and subprime is roughly $9,000 in interest. If your score is below 700 and you don't urgently need a car, spending 6 months paying down credit cards (utilization is the fastest-moving FICO factor) can save you more than any negotiation. If you can't wait, get pre-approval quotes from at least three lenders; rates can vary by 2–3 points for the same credit profile.