Auto Loan Calculator
Calculate your monthly car payment, total interest, and total cost with this free auto loan calculator.
How Auto Loans Work
An auto loan is an installment loan used to purchase a vehicle. You borrow a set amount and repay it in fixed monthly payments over an agreed term, typically 24 to 84 months. Each payment covers both principal (reducing your balance) and interest (the lender's charge for borrowing). The loan is secured by the vehicle itself, which means the lender can repossess the car if you default.
The Auto Loan Payment Formula
Monthly payments are calculated using the standard amortization formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount (vehicle price minus down payment and trade-in, plus sales tax on the financed amount), r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. This formula ensures each payment is the same amount throughout the loan.
Factors That Affect Your Loan Amount
Your total loan amount depends on more than just the sticker price. Sales tax is typically applied to the vehicle price minus your trade-in value (varies by state), and this tax amount is usually rolled into the loan. A larger down payment or a higher trade-in value directly reduces the amount you need to finance, lowering both your monthly payment and total interest paid.
Tips for Getting the Best Auto Loan
Check your credit score before shopping — even a small improvement can qualify you for a better rate. Get pre-approved from your bank or credit union to establish a baseline. Keep the loan term to 60 months or less to avoid paying excessive interest and going underwater. Put at least 10-20% down to start with equity in the vehicle. Finally, negotiate the total price of the car, not the monthly payment — dealers can make any monthly payment look attractive by stretching the term.
Frequently Asked Questions
What is a good interest rate for an auto loan?
As of 2024-2025, a good rate for a new car loan is around 5-7% for borrowers with good credit (700+). Excellent credit (750+) can qualify for 4-5% or promotional 0% financing from manufacturers. Used car loans typically run 1-2% higher. Credit unions often offer the most competitive rates, so check with yours before accepting dealer financing.
How long should my auto loan be?
Financial experts generally recommend keeping auto loans to 60 months (5 years) or less. While 72- and 84-month loans have lower monthly payments, they cost significantly more in total interest and increase the risk of being 'underwater' — owing more than the car is worth. A shorter term builds equity faster and reduces total cost.
Should I put money down on a car?
Yes. A down payment of at least 10-20% is recommended. It reduces your loan amount and monthly payment, lowers total interest paid, and helps you avoid being upside-down on the loan. A larger down payment may also help you qualify for a better interest rate.
Is it better to finance through the dealer or a bank?
Get pre-approved at your bank or credit union before visiting the dealer so you have a baseline rate. Then let the dealer try to beat it. Dealers sometimes offer promotional rates (like 0% APR) on new cars that beat bank rates, but be careful — those deals may come with a higher purchase price or require forgoing manufacturer rebates.