Car Loan Calculator

Your monthly car payment depends on four factors, but loan term affects total cost more than most buyers realize. A $25,000 loan at 6% costs $483/month for 4 years or $402/month for 6 years — but the longer loan costs $4,200 more in total interest. The extra two years of payments cost you more than the monthly savings.

This calculator uses the standard amortization formula where each payment includes both principal and interest. Early payments are mostly interest, while later payments are mostly principal. Your payment stays the same, but the split changes monthly. The calculator assumes a fixed interest rate and equal monthly payments throughout the loan term.

Dealer financing often appears attractive with promotional rates, but dealers make money on financing markups. Banks and credit unions typically offer more transparent pricing. Get pre-approved before shopping to know your real rate and strengthen your negotiating position on both car price and financing terms.

Use this calculator when comparing financing options before visiting dealers. Calculate payments for different down payment amounts to see how much cash upfront reduces monthly costs. Compare loan terms to understand the true cost difference between 4, 5, and 6-year loans at your expected interest rate.

Run scenarios with your pre-approved bank rate versus dealer promotional rates. Dealers often mark up interest rates by 1-2% above your qualifying rate. A 2% markup on a $25,000 loan costs an extra $1,300 over 5 years — enough to negotiate aggressively on car price instead.

Use the calculator to set your car shopping budget. Work backwards from a comfortable monthly payment to determine maximum car price with realistic down payment and loan terms. This prevents emotional overspending on the lot when you fall in love with a car above your budget.

The biggest mistake is focusing only on monthly payment instead of total cost. Dealers exploit this by extending loan terms to hit your target payment while maximizing their profit. A $400/month payment sounds the same whether it's 4 years or 7 years, but the 7-year loan costs thousands more in interest.

Many buyers skip the down payment to preserve cash, but this creates immediate negative equity. Your car depreciates faster than you pay down the loan in early years, especially with long terms. Gap insurance becomes essential but adds cost. Put down at least 10% to avoid this trap.

Trade-in timing errors cost thousands. Trading in a car before paying it off often means rolling negative equity into your new loan. This inflates your new loan amount and monthly payment. Wait until your loan balance equals or is less than the car's trade value, or pay the difference in cash.

The monthly payment formula is M = P × [r(1+r)ⁿ] / [(1+r)ⁿ-1], where M is monthly payment, P is loan principal, r is monthly interest rate (annual rate ÷ 12), and n is total number of payments. For a $20,000 loan at 6% for 5 years: r = 0.06/12 = 0.005, n = 60 payments, so M = $20,000 × [0.005(1.005)⁶⁰] / [(1.005)⁶⁰-1] = $386.66.

The formula assumes compound interest calculated monthly. Each payment covers the month's interest charge first, then reduces the principal balance. On that $20,000 loan, your first payment includes $100 interest (20,000 × 0.005) and $286.66 principal. Your final payment includes just $1.93 interest and $384.73 principal.

For zero-interest loans, the calculation simplifies to loan amount divided by number of payments. A $24,000 loan over 48 months equals exactly $500/month with no interest charges — but verify these promotional rates don't include hidden fees that effectively create interest charges.

The dealer's financing department makes more profit margin on loan markups than car sales. Your qualifying rate might be 5%, but they can legally charge you 7% and keep the difference. Credit unions typically offer the most transparent auto loan rates, while dealer promotional rates often require perfect credit and may include prepayment penalties or limited car selection.