Calculate your monthly car loan payments and total cost
Common terms: 36, 48, 60, 72, or 84 months
Car loan payments are calculated using the loan amount (car price minus down payment and trade-in, plus sales tax if financed), interest rate, and loan term. The formula accounts for compound interest, ensuring you pay the same amount each month while the interest portion decreases and principal portion increases over time.
Your loan amount is determined by taking the vehicle price, subtracting your down payment and trade-in value, then adding sales tax if you choose to finance it. This total amount is then divided into equal monthly payments based on your interest rate and loan term, with interest calculated on the remaining balance each month.
The starting point for your loan calculation. New cars typically cost $30,000-$50,000, while used cars average $20,000-$30,000. Higher vehicle prices result in larger loan amounts and higher monthly payments.
The upfront cash you pay reduces your loan amount. A 20% down payment is ideal, but 10% is common. Larger down payments mean lower monthly payments, less interest paid, and better loan approval odds. They also help avoid being "underwater" (owing more than the car's worth).
If you're trading in your current vehicle, its value reduces your loan amount just like a down payment. Get multiple appraisals to ensure you're getting fair value. Be aware that dealers may offer less than private sale value but provide convenience.
Most states charge 4-10% sales tax on vehicle purchases. You can pay this upfront or finance it as part of your loan. Financing sales tax increases your loan amount and total interest paid, but preserves your cash for other expenses or a larger down payment.
Your APR depends on credit score, loan term, and whether the car is new or used. Excellent credit (720+) may qualify for 3-5% on new cars, while fair credit (620-679) might see 8-12%. Used car rates are typically 1-3% higher. Even a 1% difference can save thousands over the loan term.
Common terms are 36, 48, 60, 72, or 84 months. Longer terms mean lower monthly payments but significantly more interest paid. A 72-month loan might have comfortable payments but could cost $3,000-$5,000 more in interest than a 48-month loan. Shorter terms build equity faster and save money.
| Loan Term | Monthly Payment | Total Interest | Pros | Cons |
|---|---|---|---|---|
| 36 months | Highest | Lowest | Build equity fast, save on interest | High monthly payment |
| 48 months | High | Low | Good balance, reasonable interest | Still high payment |
| 60 months | Moderate | Moderate | Most popular, balanced payment | More interest than shorter terms |
| 72 months | Low | High | Affordable monthly payment | Slow equity build, high interest |
| 84 months | Lowest | Highest | Very low monthly payment | Underwater risk, very high interest |
Dealers love to ask "what monthly payment works for you?" because they can extend the loan term to hit that number while you pay thousands more in interest. Always consider the total loan cost and interest paid, not just the monthly amount.
Walking into a dealership without pre-approval puts you at a disadvantage. Dealers can mark up interest rates by 1-2%, costing you thousands. Get pre-approved from multiple lenders to know your true rate and have negotiating leverage.
If you owe more than your trade-in is worth, rolling that negative equity into a new loan starts you underwater immediately. You'll pay interest on money that doesn't even go toward your new car. Better to pay off the difference or wait until you have positive equity.
84-month loans might seem attractive with low payments, but you'll be paying for a car long after major repairs start appearing. You'll also be underwater for years, making it difficult to trade or sell. Stick to 60 months or less when possible.
Review all loan documents carefully before signing. Check for prepayment penalties, balloon payments, or variable interest rates. Understand all fees and charges. Don't let dealers rush you through paperwork - take time to read everything.
Refinancing can save money if interest rates have dropped, your credit score has improved, or you got a high rate initially. Consider refinancing if you can lower your rate by at least 1-2%, have at least $7,500 remaining on your loan, and have at least two years left on your term.
However, avoid refinancing if you're close to paying off your loan, as closing costs might outweigh savings. Also be cautious about extending your loan term during refinancing - while it lowers monthly payments, you'll pay more interest overall and delay building equity in your vehicle.
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