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Understanding Your Car Loan Amortization

Purchasing a vehicle is one of the most significant financial commitments many people make. Understanding how your car loan amortizes—how the balance decreases over time—is crucial for financial planning. This calculator helps you determine your monthly payments and the total interest you will pay over the life of the loan.

How Car Loan Interest is Calculated

Unlike simple interest loans, auto loans are typically amortized. This means your monthly payment remains the same throughout the term, but the portion going toward interest versus principal changes. In the beginning, a larger chunk of your payment covers interest. As the principal balance decreases, less interest accrues, and more of your payment goes toward paying off the car.

Key Factors Affecting Your Monthly Payment

• Vehicle Price & Trade-In: The starting price minus any trade-in equity or down payment determines the base amount you need to finance.
• Sales Tax: Often overlooked, sales tax is added to the vehicle price and usually financed, which increases your monthly payment and total interest paid.
• Interest Rate (APR): Your credit score significantly impacts this rate. A lower APR means lower monthly payments and significantly less total interest paid over the life of the loan.
• Loan Term: Longer terms (e.g., 72 or 84 months) lower your monthly payment but increase the total interest paid. Shorter terms increase monthly costs but save money long-term.

Example Calculation

For example, if you buy a car for $30,000 with a $5,000 down payment and 6% sales tax, your financed amount (including tax) would be roughly $26,800. At a 5% interest rate over 60 months, your payment would be approximately $505 per month. Over 5 years, you would pay about $3,500 in total interest.

function calculateCarLoan() { // Get Input Values var price = parseFloat(document.getElementById('cl_vehiclePrice').value) || 0; var downPayment = parseFloat(document.getElementById('cl_downPayment').value) || 0; var tradeIn = parseFloat(document.getElementById('cl_tradeIn').value) || 0; var taxRate = parseFloat(document.getElementById('cl_salesTax').value) || 0; var interestRate = parseFloat(document.getElementById('cl_interestRate').value) || 0; var months = parseInt(document.getElementById('cl_loanTerm').value) || 60; // Validation logic if (price < 0) price = 0; if (downPayment < 0) downPayment = 0; if (tradeIn < 0) tradeIn = 0; // Calculate Sales Tax (Tax is usually applied to Price minus Trade-in in many states, // but simplified here to Price for general use, or Price – TradeIn based on common logic) // Let's assume Tax is on (Price – TradeIn) which is common, but ensure non-negative base. var taxableAmount = Math.max(0, price – tradeIn); var taxAmount = taxableAmount * (taxRate / 100); // Calculate Loan Amount (Principal) // Principal = (Price + Tax) – Down Payment – TradeIn // Note: TradeIn is already subtracted from Price for Tax calculation, but needs to be subtracted from Total Cost for financing. // Formula: (Price + Tax) – DownPayment – TradeIn var totalCostInitial = price + taxAmount; var loanAmount = totalCostInitial – downPayment – tradeIn; if (loanAmount <= 0) { // If down payment covers everything document.getElementById('cl_result_monthly').innerHTML = "$0.00"; document.getElementById('cl_result_financed').innerHTML = "$0.00"; document.getElementById('cl_result_interest').innerHTML = "$0.00"; document.getElementById('cl_result_total').innerHTML = formatMoney(price + taxAmount); return; } // Interest Calculations var monthlyRate = (interestRate / 100) / 12; var monthlyPayment = 0; var totalInterest = 0; var totalPayment = 0; if (interestRate === 0) { monthlyPayment = loanAmount / months; totalPayment = loanAmount; totalInterest = 0; } else { // Amortization Formula: P * ( r(1+r)^n ) / ( (1+r)^n – 1 ) var x = Math.pow(1 + monthlyRate, months); monthlyPayment = (loanAmount * x * monthlyRate) / (x – 1); totalPayment = monthlyPayment * months; totalInterest = totalPayment – loanAmount; } var totalCostOfCar = price + taxAmount + totalInterest; // Output Results document.getElementById('cl_result_monthly').innerHTML = formatMoney(monthlyPayment); document.getElementById('cl_result_financed').innerHTML = formatMoney(loanAmount); document.getElementById('cl_result_interest').innerHTML = formatMoney(totalInterest); document.getElementById('cl_result_total').innerHTML = formatMoney(totalCostOfCar); } function formatMoney(amount) { return '$' + amount.toLocaleString('en-US', { minimumFractionDigits: 2, maximumFractionDigits: 2 }); } // Initialize calculation on load window.onload = function() { calculateCarLoan(); };