Calculator Use
Our car loan calculator is designed to help you estimate your monthly payments and the total cost of financing a vehicle. Whether you are buying a brand-new sedan or a used truck, understanding the financial commitment is crucial before signing any paperwork at the dealership. This tool factors in the purchase price, down payment, trade-in values, interest rates, and local sales tax to provide a comprehensive financial picture.
- Auto Price
- The total purchase price of the vehicle before taxes, fees, or down payments.
- Down Payment
- The amount of cash you are paying upfront to reduce the loan balance.
- Interest Rate (APR)
- The Annual Percentage Rate charged by the lender for borrowing the money.
- Loan Term
- The number of months you have to pay back the car loan (e.g., 60 months for 5 years).
How It Works
The car loan calculator uses the standard amortization formula to calculate the monthly payment. This ensures that by the end of your term, the principal is fully paid off along with the interest accrued. The formula used is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M = Total monthly payment
- P = Principal loan amount (Price – Down Payment – Trade-in + Taxes)
- i = Monthly interest rate (Annual Rate / 12)
- n = Total number of months (Term)
Calculation Example
Example: Imagine you are purchasing a car for $30,000. You have a $5,000 down payment and a trade-in worth $2,000. Your interest rate is 5% for a 60-month term, and your sales tax is 6%.
Step-by-step solution:
- Calculate Sales Tax: ($30,000 – $2,000) * 0.06 = $1,680
- Determine Principal (P): $30,000 – $5,000 – $2,000 + $1,680 = $24,680
- Monthly Interest (i): 0.05 / 12 = 0.004167
- Total Months (n): 60
- Calculate Payment: $24,680 * [0.004167(1.004167)^60] / [(1.004167)^60 – 1]
- Monthly Payment = $465.74
Common Questions
How does a trade-in affect my car loan?
A trade-in acts like a down payment. It reduces the amount of money you need to borrow. Additionally, in many states, you only pay sales tax on the difference between the new car price and the trade-in value, which can save you hundreds of dollars in taxes.
Should I choose a longer or shorter loan term?
A shorter loan term (like 36 or 48 months) means higher monthly payments but significantly less interest paid over time. A longer term (72 or 84 months) lowers your monthly payment but increases the total cost of the car due to interest accumulation.
What is a good APR for a car loan?
Interest rates vary based on your credit score, the lender, and whether the car is new or used. Typically, "good" rates range from 3% to 6% for buyers with excellent credit, while those with lower credit scores may see rates of 10% to 20% or higher.