How This Calculator Works
Auto loans use the same standard amortization formula as mortgages:
M = P × [ r(1+r)n / ((1+r)n − 1) ]
Where:
- M = monthly payment (principal + interest)
- P = loan principal = vehicle price − down payment − trade-in value (+ sales tax in many states)
- r = monthly interest rate = APR ÷ 12
- n = total number of payments = term in months
The formula derives from the present value of an annuity: the loan principal equals the discounted value of all future monthly payments. Rearranging solves for the payment M.
Total interest paid over the life of the loan:
Total Interest = (M × n) − P
And the total cost of the vehicle (the all-in amount you pay):
Total Cost = Vehicle Price + Total Interest + Sales Tax
A critical insight: most auto loans use simple interest, meaning interest accrues daily on the outstanding principal balance — not on the original loan amount. This is why making even one extra payment per year can shorten your loan term and reduce total interest paid significantly. Some dealer-arranged loans, however, use precomputed interest (where the full interest is baked into the loan upfront), which removes this benefit. Always verify your loan uses simple interest before signing.
APR matters more than loan amount for total cost. Doubling the APR roughly doubles the total interest paid over the life of the loan, while extending the loan term from 36 to 72 months on a fixed APR increases total interest by far more than double — because you are paying interest on a slowly declining balance for twice as long.
When to Use This Calculator
Use this auto loan calculator when you are:
- Comparing new vs used car financing — used-car APRs typically run 2–5 percentage points higher than new-car rates
- Evaluating dealer financing vs a credit union or bank pre-approval (often 1–3% cheaper)
- Deciding between 48, 60, 72, or 84-month terms and weighing lower payments vs higher total interest
- Estimating the impact of a larger down payment or higher trade-in value on monthly cash flow
- Refinancing an existing auto loan after your credit improves or rates drop
- Budgeting for total cost of ownership — pair this with our auto insurance calculator to see monthly payment + insurance + fuel + maintenance
Auto loan rates vary widely by lender and credit tier. Superprime borrowers (781+ FICO) average around 5.4% APR on new cars, while subprime borrowers (below 600) average over 15%. Always pre-qualify with at least three lenders before signing at the dealership.
Example Calculation
You are buying a $35,000 used SUV. You put down $5,000 and trade in your old car for $4,000. The dealer offers financing at 7.5% APR for 60 months.
- Loan principal: $35,000 − $5,000 − $4,000 = $26,000
- Monthly interest rate: 7.5% ÷ 12 = 0.625% = 0.00625
- Number of payments: 60
- Monthly payment: $26,000 × [0.00625 × (1.00625)60 ÷ ((1.00625)60 − 1)] = $521.10
Over the 60-month term:
- Total payments: $521.10 × 60 = $31,266
- Total interest: $31,266 − $26,000 = $5,266
- Total vehicle cost: $35,000 + $5,266 = $40,266
Now compare the same loan at 72 months (a common dealer affordability tactic):
- Monthly payment drops to $449.36 (saving $71.74/month)
- But total interest rises to $6,358 (an extra $1,092 over the loan life)
- Total vehicle cost: $41,358
This is the dealership trade-off in action: extending the term by 12 months costs you $1,092 in extra interest while only saving $72/month. If your budget can absorb the higher payment, the 60-month loan is overwhelmingly better. If cash flow is tight, the 72-month term may be justifiable — but you should also consider that cars depreciate fastest in the first 3 years, so a longer loan increases the risk of being underwater (owing more than the car is worth).