Auto Loan Monthly Payment Calculator
Estimate your monthly car payments and total interest costs based on loan terms and interest rates.
Understanding Your Car Loan Calculation
Choosing a new vehicle is an exciting milestone, but understanding the financial implications is crucial for long-term budget health. Our auto loan calculator helps you break down the monthly cost of financing a vehicle, including taxes and trade-ins.
How Monthly Car Payments are Calculated
The math behind an auto loan is based on an amortization formula. To calculate the payment, we first determine the Net Loan Amount (Principal). This is calculated as:
(Vehicle Price + Sales Tax) – (Down Payment + Trade-in Value) = Principal
Once the principal is established, we apply the monthly interest rate using the standard formula:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
- M: Total monthly payment
- P: Principal loan amount
- i: Monthly interest rate (Annual rate divided by 12)
- n: Number of months (loan term)
Key Factors That Influence Your Payment
Several variables can significantly change how much you pay for your vehicle over time:
- Credit Score: This is the primary factor lenders use to determine your interest rate. A higher score typically leads to lower rates.
- Loan Term: Longer terms (e.g., 72 or 84 months) result in lower monthly payments but significantly higher total interest costs.
- Down Payment: The more you pay upfront, the less you need to borrow, which reduces the total interest paid over the life of the loan.
Example Scenario
Suppose you are purchasing a car for $35,000 with a 7% sales tax. You have a $5,000 down payment and a $3,000 trade-in. If you secure a 5% interest rate for 60 months:
- Tax Amount: $2,450
- Total Net Loan: $29,450
- Monthly Payment: Approximately $555.76
- Total Interest Paid: $3,895.60
By using this calculator before visiting a dealership, you can negotiate with confidence and ensure you stay within your monthly budget.