Car Loan Calculator

Estimate your monthly car payment and total cost of your auto loan.

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How Car Loans Work

A car loan (auto loan) is a secured installment loan where the vehicle serves as collateral. The lender provides funds to purchase the car, and you repay the loan in fixed monthly installments over an agreed term. Your monthly payment amount depends on four key factors: the vehicle price, your down payment and trade-in value, the interest rate (APR), and the loan term length. Understanding how these factors interact helps you make a smarter financing decision and avoid common pitfalls like negative equity.

The Auto Loan Formula

Monthly payment: M = P × r × (1 + r)n / [(1 + r)n – 1], where P is the financed amount (vehicle price − down payment − trade-in), r is the monthly interest rate, and n is the total number of monthly payments.

Worked Example

Buying a $35,000 car with $5,000 down and a $3,000 trade-in, financing $27,000 at 5.5% APR for 60 months:

  • Monthly payment: $515
  • Total interest over 5 years: $3,915
  • Total cost of the vehicle: $38,915
  • Same loan at 72 months: $442/month but $4,811 total interest — $896 more

Key Auto Financing Terms

APR (Annual Percentage Rate)
The total annual cost of borrowing, including fees. Compare APRs across lenders for an apples-to-apples comparison.
Negative Equity (Upside Down)
When you owe more on the loan than the car is worth. Common with long terms and small down payments.
Trade-in Value
The amount a dealer offers for your current vehicle, applied as a credit toward your new purchase.
Pre-Approval
Getting a rate commitment from a bank/credit union before shopping, giving you negotiating leverage.
GAP Insurance
Covers the "gap" between your loan balance and the car's actual value if the vehicle is totaled or stolen.

Smart Car Buying Strategies

  • Get pre-approved first: Know your rate before visiting dealerships to negotiate from a position of strength
  • Limit your term to 60 months: Longer terms increase total cost and risk of negative equity
  • Put 20% down: Helps you start with positive equity and reduces total interest
  • Compare at least 3 lenders: Rates can vary 2-3% between banks, credit unions, and dealers
  • Focus on total cost, not monthly payment: Dealers may stretch the term to lower your payment while increasing total cost

Frequently Asked Questions

How is a car loan payment calculated?

Car loan payments use the same amortization formula as other installment loans: M = P × r × (1+r)ⁿ / [(1+r)ⁿ – 1], where P is the loan amount (vehicle price minus down payment and trade-in), r is the monthly interest rate, and n is the number of monthly payments. A higher down payment or shorter term reduces the total cost.

What is negative equity on a car loan?

Negative equity (being "upside down") means you owe more on the loan than the car is currently worth. This commonly happens with long loan terms (72-84 months), small down payments, or rapid depreciation. If you need to sell or trade in the car, you would have to pay the difference out of pocket.

Should I finance through the dealer or my bank?

Getting pre-approved through your bank or credit union before visiting a dealer gives you leverage to negotiate. Dealer financing may offer promotional rates (0% APR) on new cars, but typically has higher rates on used vehicles. Always compare at least 3 offers before committing.

How much should I put down on a car?

Financial experts recommend a 20% down payment on new cars and 10% on used cars to avoid negative equity. A larger down payment reduces your loan amount, monthly payment, and total interest. It also means you start with positive equity immediately.

Is a longer car loan term always better?

Longer terms (72-84 months) lower your monthly payment but cost significantly more in total interest and increase the risk of negative equity. A 60-month or shorter term is ideal — it balances affordable payments with reasonable total cost and keeps you above water on the loan.