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How to use this calculator#
- Enter the negotiated price, not the stickerUse the out-the-door price you actually agreed, and fold in documentation, title and registration fees if you plan to finance them. Every dollar of fee rolled into the loan is a dollar you also pay interest on for the next five years.
- Separate the down payment from the trade-inThey both reduce the amount financed, but only the trade-in reduces the taxable amount in most US states. If you owe more on the trade than it is worth, enter zero here and add the negative equity to the price instead.
- Set the sales tax rate for where the car is registeredVehicle tax follows the registration address, not the dealership. This tool taxes the price minus the trade-in, which is the rule in most — but not all — US states.
- Use the APR, then compare termsAuto APR normally reflects the true cost because dealer fees are already in the price. Run 48, 60 and 72 months side by side: the payment falls smoothly, the interest does not.
The formula#
Amount financed, then the standard amortizing payment
Financed = Price + [(Price − Trade) × TaxRate] − Down − Trade then M = F × [ r(1 + r)ⁿ ] ÷ [ (1 + r)ⁿ − 1 ]
- Price
- Negotiated vehicle price including any financed fees
- Trade
- Trade-in allowance credited by the dealer
- Down
- Cash down payment
- TaxRate
- Sales tax as a decimal, applied to price minus trade-in
- F
- Amount financed — the output of the first equation
- r
- Monthly rate: APR ÷ 12, as a decimal
- n
- Term in months
The term here is in months, so n is 60, not 5. Enter the term in months and divide the APR by 12; using an annual rate with a monthly term count is the error that produces payments five times too large.
What actually gets financed#
The amount you borrow is rarely the sticker price. Start with the vehicle price, subtract your down payment and any trade-in allowance, then add sales tax and fees. On a 32,000 car with 4,000 down, a 6,000 trade-in and 7% tax charged on the 26,000 difference, you finance 22,000 of vehicle plus 1,820 of tax — 23,820 in total. Getting that base figure right matters more than shaving a tenth off the rate.
Several US states tax only the difference between the price and the trade-in, as above. Others tax the full 32,000 regardless, which would push the tax to 2,240 and cost you 420 more. Check your state or provincial rule before you assume the saving, and add title, registration and documentation fees to the price if you plan to roll them into the loan.
Term length and negative equity#
Stretching a loan from 48 to 84 months cuts the monthly payment by roughly a third, but the interest bill nearly doubles. At 8% APR on 24,000, a 48-month term costs about 4,120 in interest while 84 months costs about 7,420 — for exactly the same car, driven exactly the same way.
Long terms also keep you underwater. Cars typically shed about 20% of their value in the first year and around 15% a year after that, so a seven-year loan can leave you owing more than the vehicle is worth until year four or five. That negative equity gets rolled into your next loan if you trade early, which is how buyers end up financing two cars at once.
APR, dealer finance and rebates#
APR bundles lender fees into the rate, so it is the number to compare rather than the headline interest rate. Dealers often present a choice between a cash rebate and subsidised 0% financing — take the rebate whenever the interest you would pay at a bank or credit union rate is smaller than the rebate itself. Getting pre-approved before you walk in gives you a benchmark to negotiate against.
Worked examples#
A $32,000 car with a trade-in
$4,000 cash down, a $6,000 trade-in, 7% sales tax and 8% APR over 60 months.
- Taxable amount = 32,000 − 6,000 = 26,000
- Sales tax = 26,000 × 0.07 = 1,820
- Financed = 32,000 + 1,820 − 4,000 − 6,000 = 23,820
- Monthly rate r = 0.08 ÷ 12 = 0.00666667; n = 60
- (1 + r)ⁿ = 1.00666667⁶⁰ = 1.489846
- M = 23,820 × (0.00666667 × 1.489846) ÷ 0.489846 = 482.98
$482.98 a month. Total of payments $28,979.02, of which $5,159.02 is interest; total cost of the car including the deposit and trade-in is $38,979.02.
What 60 months versus 84 months really costs
The same $23,820 financed at 8% APR, stretched from five years to seven.
- 60 months: M = 482.98, total paid = 482.98 × 60 = 28,979.02
- 84 months: M = 371.26, total paid = 371.26 × 84 = 31,186.14
- Payment falls by 482.98 − 371.26 = 111.72 a month
- Interest rises from 5,159.02 to 7,366.14, an increase of 2,207.12
Saving $112 a month costs $2,207 in extra interest — and leaves you owing money on a seven-year-old car whose value has already collapsed.
Reference tables#
| APR | 36 months | 48 months | 60 months | 72 months | 84 months |
|---|---|---|---|---|---|
| 3% | $290.81 | $221.34 | $179.69 | $151.94 | $132.13 |
| 5% | $299.71 | $230.29 | $188.71 | $161.05 | $141.34 |
| 7% | $308.77 | $239.46 | $198.01 | $170.49 | $150.93 |
| 9% | $318.00 | $248.85 | $207.58 | $180.26 | $160.89 |
| 11% | $327.39 | $258.46 | $217.42 | $190.34 | $171.22 |
| 13% | $336.94 | $268.27 | $227.53 | $200.74 | $181.92 |
Example: $18,000 financed at 7% over 60 months is 1.8 × $198.01 = $356.42 a month.
| Term | Monthly payment | Total of payments | Total interest |
|---|---|---|---|
| 36 months | $746.43 | $26,871.56 | $3,051.56 |
| 48 months | $581.52 | $27,912.76 | $4,092.76 |
| 60 months | $482.98 | $28,979.02 | $5,159.02 |
| 72 months | $417.64 | $30,070.21 | $6,250.21 |
| 84 months | $371.26 | $31,186.14 | $7,366.14 |
Going from 36 to 84 months halves the payment and multiplies the interest by 2.4. Most lenders reserve their sharpest rates for terms of 60 months and under.
| Down payment | Amount financed | Monthly payment | Total interest |
|---|---|---|---|
| $0 (0%) | $34,240 | $694.26 | $7,415.82 |
| $1,600 (5%) | $32,640 | $661.82 | $7,069.29 |
| $3,200 (10%) | $31,040 | $629.38 | $6,722.76 |
| $4,800 (15%) | $29,440 | $596.94 | $6,376.22 |
| $6,400 (20%) | $27,840 | $564.49 | $6,029.69 |
Every $1,600 down removes about $32 from the monthly payment and $347 from the interest bill, and it is the only lever that also protects you from going underwater.
Common mistakes#
- Negotiating the monthly payment instead of the priceA salesperson can hit almost any monthly target by lengthening the term, and the extra interest never appears in that conversation. Agree the out-the-door price first, arrange finance separately, and only then discuss what it costs per month.
- Assuming your state gives a trade-in tax creditMost US states tax the price net of the trade-in, but several — including California and Michigan in part — do not. On this $32,000 example the difference is $420 of extra tax, which becomes $8.52 a month once financed.
- Rolling negative equity into the new loanIf you owe $4,000 more than the old car is worth, that balance is added to the new price and financed at the new rate. You are now paying interest on a car you no longer own, and you start the new loan already underwater.
- Taking 0% financing without pricing the rebate you gave upManufacturers usually make 0% and a cash rebate mutually exclusive. If the rebate is $2,500 and a credit union loan of the same term would cost $2,100 in interest, take the rebate — the promotional rate is the more expensive option by $400.
Frequently asked questions#
Should I put more money down?
A bigger down payment lowers the monthly payment and total interest, and it protects you from negative equity. Lenders often reserve their sharpest rates for buyers putting down 10-20%.
Does this include registration and dealer fees?
It covers price, sales tax, down payment and trade-in. Add documentation, title and registration fees into the vehicle price if you intend to finance them.
Is 0% financing always the best deal?
Not always. Manufacturers usually make you forfeit a cash rebate to qualify. Compare the rebate against the interest you would pay on a conventional loan of the same term.
What credit score do I need for the lowest rate?
Lenders generally reserve their best auto rates for scores above 720. Below about 660 the rate can be several points higher, which is why shopping three or four lenders is worth the hour.
Key terms#
- Amount financed
- Price plus taxes and financed fees, minus the down payment and trade-in allowance. This — not the sticker price — is what interest is charged on.
- Negative equity
- Owing more on a vehicle than it is worth. Common in the first two to four years of a long loan, because depreciation outruns principal repayment.
- Trade-in tax credit
- A state rule that charges sales tax only on the price net of your trade-in. Where it applies it is worth roughly the tax rate times the trade-in value.
- GAP insurance
- Cover that pays the difference between the insurance settlement and the outstanding loan if the car is written off while you are underwater.
- Buy rate vs sell rate
- The rate the lender approves for you versus the rate the dealer quotes. The dealer may keep the difference as finance reserve, which is why an outside pre-approval is worth having.
Sources#
- Auto loans — understanding the total cost — Consumer Financial Protection Bureau
- Financing or leasing a car — dealer finance, add-ons and total cost — Federal Trade Commission
- Consumer Credit — G.19 statistical release (new-car loan terms and rates) — Federal Reserve Board
Figures last checked .
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