Estimate your monthly car payment including trade-in, down payment, sales tax, and fees.
How Auto Loans Work
An auto loan is a secured installment loan used to finance a vehicle purchase. The car itself serves as collateral, meaning the lender can repossess it if you fail to make payments. Because the loan is secured, auto loan rates are typically lower than unsecured personal loans.
Understanding Your Car Payment
Your monthly auto loan payment depends on several factors beyond just the car's sticker price:
- Vehicle price — The negotiated purchase price of the car.
- Down payment — The cash you pay upfront. A larger down payment reduces the amount you need to borrow.
- Trade-in value — If you're trading in a vehicle, its value is deducted from the purchase price.
- Sales tax — Most states charge sales tax on vehicle purchases, which is often rolled into the loan.
- Interest rate (APR) — The cost of borrowing, expressed as an annual percentage rate.
- Loan term — How long you have to repay. Common terms are 36 to 72 months.
The Auto Loan Formula
The monthly payment is calculated using the standard amortization formula, applied to the loan amount (car price minus down payment and trade-in, plus sales tax):
M = P × [r(1+r)n] / [(1+r)n - 1]
New vs. Used Car Financing
New car loans typically offer lower interest rates than used car loans, sometimes with promotional 0% APR financing from manufacturers. However, new cars depreciate rapidly—losing 20% or more of their value in the first year. Used cars have higher rates but slower depreciation, which can mean you build equity faster. Consider the total cost of ownership, not just the monthly payment.
Tips for the Best Auto Loan Deal
- Get pre-approved first — Shop for financing at banks, credit unions, and online lenders before visiting the dealership. This gives you a rate to compare against the dealer's offer.
- Negotiate the total price, not the monthly payment — Dealers can stretch loan terms to make payments seem affordable, but you'll pay more in interest.
- Put at least 20% down — This helps you avoid being "upside down" (owing more than the car is worth) and reduces interest costs.
- Choose the shortest term you can afford — A 60-month loan has lower payments than a 36-month loan, but you'll pay significantly more interest.
- Check your credit score — Borrowers with excellent credit (750+) get the best rates. Even a 1% difference in rate can save you over $1,000 on a $25,000 loan.
For other types of financing, try our personal loan calculator or mortgage calculator.