How to Calculate Your Car Loan Payment
Before visiting a dealership, it is crucial to know what you can afford. This car loan calculator factors in the vehicle price, down payment, trade-in value, sales tax, interest rate, and loan term to give you an accurate monthly payment estimate.
The formula used is the standard amortization formula, which calculates equal monthly payments that cover both principal and interest over the life of the loan.
Car Loan Payment Formula
The monthly payment is calculated using:
M = P x [r(1+r)^n] / [(1+r)^n - 1]
- M = Monthly payment
- P = Principal (loan amount after down payment and trade-in)
- r = Monthly interest rate (annual rate / 12)
- n = Number of monthly payments
How to Use This Calculator
- Vehicle price: Enter the total price of the car.
- Down payment: Enter the cash you will pay upfront.
- Interest rate: Enter the APR offered by your lender.
- Loan term: Choose from 36 to 84 months.
- Trade-in value: Enter the value of your trade-in vehicle.
- Sales tax: Enter your local sales tax rate.
Tips for Getting the Best Car Loan
- Check your credit score first: Know where you stand before applying.
- Get pre-approved: Shop rates at banks, credit unions, and online lenders before going to the dealer.
- Negotiate the price first: Focus on the total price, not the monthly payment.
- Keep the term short: A 48 or 60-month term balances affordability with total cost.
- Consider total cost: A lower monthly payment over more months often costs thousands more in interest.
Car Loan Calculator FAQ
What is a good interest rate for a car loan?
As of 2024, good rates for new cars are 4-7% for excellent credit (750+), 7-10% for good credit (700-749), and 10-15% for fair credit (650-699). Used car rates are typically 1-2% higher. Credit unions often offer the best rates.
How much should I put down on a car?
Financial experts recommend putting at least 20% down on a new car and 10% on a used car. A larger down payment reduces your monthly payment, total interest paid, and the risk of being upside-down on your loan.
Is a 72-month car loan a bad idea?
Longer loan terms mean lower monthly payments but significantly more interest paid over the life of the loan. A 72 or 84-month loan also increases the risk of negative equity. If you need a long term to afford the payment, consider a less expensive vehicle.
Should I include sales tax in my car loan?
Many buyers finance the sales tax as part of their auto loan since it can add thousands to the purchase price. However, paying tax upfront reduces your total interest cost. This calculator lets you include or exclude tax to compare both scenarios.
How does a trade-in affect my car loan?
A trade-in reduces the amount you need to finance, lowering both your monthly payment and total interest. If you owe more on your trade-in than it is worth (negative equity), that amount gets added to your new loan balance.