Auto Loan

1. Enter the **vehicle price** — the negotiated purchase price of the car before any taxes or credits.
2. Enter your **sales tax rate** as a percentage (e.g., 7.5 for 7.5%). Check your state's DMV or revenue department for the exact rate.
3. Enter your **trade-in value** if you are exchanging an existing vehicle. If not, leave this as 0.
4. Enter your **down payment** — the cash amount you plan to pay upfront.
5. Enter the **annual interest rate (APR)** offered by your lender or dealership financing.
6. Select the **loan term** in months (e.g., 48, 60, or 72 months). Then click Calculate to see your monthly payment, total interest, and total cost.

M = P × [r(1+r)^n] / [(1+r)^n − 1]

• M — Monthly payment in dollars
• P — Principal — the net loan amount after subtracting trade-in and down payment from the tax-inclusive vehicle price
• r — Monthly interest rate — the annual interest rate (APR) divided by 12. For example, a 6% APR becomes r = 0.06 / 12 = 0.005
• n — Total number of monthly payments — the loan term in years multiplied by 12. A 5-year term gives n = 60
• Vehicle Price — The agreed purchase price of the vehicle before tax
• Sales Tax Rate — Your state or local sales tax rate applied to the vehicle purchase price, expressed as a decimal (e.g., 7% = 0.07)
• Trade-In Value — The credit applied toward the purchase for your existing vehicle, reducing the amount financed (and in many states, reducing the taxable amount — check local rules)
• Down Payment — Cash paid upfront at the time of purchase, directly reducing the amount financed

Taxed Price = $28,000 × 1.07 = $29,960
Principal (P) = $29,960 − $3,000 − $2,000 = $24,960
Monthly rate (r) = 0.06 / 12 = 0.005
Number of payments (n) = 60

M = 24,960 × [0.005 × (1.005)^60] / [(1.005)^60 − 1]
(1.005)^60 = 1.34885
Numerator: 0.005 × 1.34885 = 0.0067443
Denominator: 1.34885 − 1 = 0.34885
M = 24,960 × (0.0067443 / 0.34885)
M = 24,960 × 0.019333
M ≈ $482.35

Total Paid = $482.35 × 60 = $28,941
Total Interest = $28,941 − $24,960 = $3,981

Result: Monthly Payment: **$482.35** | Total Interest Paid: **$3,981** | Total Amount Paid (loan only): **$28,941**

In this example, the buyer finances $24,960 after accounting for sales tax, a $3,000 trade-in, and a $2,000 down payment. At 6% APR over 60 months, the monthly payment is approximately $482. Over the life of the loan, the buyer pays roughly $3,981 in interest. Including the down payment and trade-in, the total effective cost of the vehicle is $28,941 (loan payments) + $2,000 (down payment) = $30,941 — compared to the sticker price of $28,000, illustrating the real cost of financing.

Note: Results are estimates for planning purposes only. Actual loan terms, fees, and tax treatment vary by lender, state, and dealership. Always confirm with your lender before signing.

Understanding Your Auto Loan

What Drives Your Monthly Payment?

Four factors have the largest impact on your monthly car payment:

1. Principal (amount financed): Lower the price, maximize your trade-in, and increase your down payment to reduce this.
2. Interest rate (APR): Even 1–2 percentage points significantly affect total interest. Credit scores above 720 typically qualify for the best rates.
3. Loan term: Longer terms (72–84 months) lower monthly payments but dramatically increase total interest paid.
4. Sales tax: Often overlooked, sales tax can add thousands of dollars to the financed amount. In a state with 8% tax, a $30,000 car becomes $32,400 before any other costs.

Trade-In vs. Down Payment

A trade-in and a down payment both reduce the amount you finance, but they work slightly differently. In many U.S. states, a trade-in reduces the taxable vehicle price — meaning you pay less sales tax. A cash down payment does not reduce the taxable amount. This makes a trade-in slightly more valuable than an equivalent cash down payment in those states.

Choosing the Right Loan Term

While a 72-month loan on a $25,000 vehicle might save $100/month compared to a 48-month term, it could cost $2,000–$3,000 more in total interest. Financial experts generally recommend keeping auto loan terms at 60 months or fewer to avoid paying excessive interest and to reduce the risk of being "underwater" on the loan (owing more than the car is worth).

Dealer Financing vs. Bank/Credit Union

Dealers often mark up the APR compared to what a bank or credit union offers. Getting a pre-approval from your bank or credit union before visiting the dealership gives you negotiating leverage and ensures you know your true rate. Credit unions frequently offer rates 1–2% lower than dealerships for qualified borrowers.

GAP Insurance and Add-Ons

New cars depreciate rapidly — sometimes 15–20% in the first year. If you finance a large portion of the vehicle price, consider GAP insurance, which covers the difference between your loan balance and the car's actual cash value if it is totaled. This calculator does not include GAP insurance or dealer fees; add those to your vehicle price input for a more complete estimate.

• **Forgetting sales tax:** Omitting sales tax from your calculation can underestimate the financed amount by thousands of dollars. Always include your state's tax rate.
• **Focusing only on the monthly payment:** A low monthly payment achieved by extending the loan term to 72 or 84 months can cost significantly more in total interest than a shorter-term loan.
• **Not shopping for rates:** Accepting the dealer's first financing offer without comparing rates from a bank or credit union often results in a higher APR and hundreds of dollars in unnecessary interest.
• **Overlooking fees and add-ons:** Dealer documentation fees, title fees, registration, and optional add-ons like extended warranties are not included in the base vehicle price. Add these to get an accurate principal estimate.
• **Assuming the trade-in reduces tax in all states:** While most states offer a trade-in tax credit, some do not. Verify your state's policy before relying on this savings in your calculation.
• **Using a gross monthly income rule incorrectly:** A common guideline is that total car expenses (payment + insurance + fuel) should not exceed 15–20% of monthly take-home pay. Using gross (pre-tax) income inflates what you can actually afford.

• Average Auto Loan Rates — Consumer Financial Protection Bureau (CFPB)
• Vehicle Sales Tax by State — Sales Tax Institute
• Amortization and Loan Calculations — Federal Deposit Insurance Corporation (FDIC)
• Financing a Vehicle — Consumer Information — Federal Trade Commission (FTC)

Only sources that have been reviewed are shown. Unverified citations are never published.