Worked example

Say you are buying a $35,000 car with a $5,000 down payment, no trade-in, 7% sales tax and $700 in fees, financed at 7.5% APR over 60 months. Sales tax is 7% of $35,000 = $2,450. The amount financed is 35,000 + 2,450 + 700 − 5,000 = $33,150. At 7.5% APR the monthly payment is about $664, you pay roughly $6,700 in interest over the term, and the car's total cost (price + tax + fees + interest) comes to about $44,850.

How a car loan is calculated

A car loan is a standard amortizing loan: each fixed monthly payment covers the interest on the outstanding balance first, and whatever is left reduces the principal. Early payments are mostly interest and later ones mostly principal, which is why the balance curve above starts shallow and steepens as the loan matures. The three levers that change your payment most are the amount financed (lower it with a bigger down payment or trade-in), the APR, and the term. A longer term lowers the monthly payment but raises the total interest, and can leave you upside-down — owing more than the car is worth — because vehicles depreciate faster than the loan is paid down.

Trade-in equity and sales tax

Your trade-in is worth its market value minus anything you still owe on it. Positive equity reduces the amount you finance; negative equity (owing more than it is worth) gets rolled into the new loan and increases it. In most US states sales tax is charged only on the price after the trade-in allowance, so trading in a car can cut both the loan and the tax — this calculator applies that rule. A handful of states tax the full price; if you are in one, enter the trade-in as a down payment instead.

Related calculators

Compare against a general loan / EMI calculator, plan a home purchase with the mortgage calculator, see how clearing the car loan fits a wider plan with the debt payoff calculator, work out how long to save the down payment with the savings calculator, or fit the payment into your monthly budget planner.