How the amount financed is worked out
The loan isn’t the sticker price. It’s the price plus sales tax and any fees added to the loan, less your down payment and the value of your trade-in, plus anything you still owe on the trade-in:
Amount financed = price + sales tax + fees added to the loan + still owed on the trade-in − trade-in value − down payment
The calculator then works out the payment on that amount with the same formula and rounding as the Loan Calculator: each payment is rounded to the cent, each month’s interest is rounded to the cent, and the last payment absorbs the difference.
Worked example
A $35,000 car with $3,000 down, an $8,000 trade-in you own outright, 7% sales tax, $450 of fees added to the loan, and a 72-month loan at 6.5%:
- Sales tax on the price minus the trade-in: 7% × $27,000 = $1,890.00
- Amount financed: $35,000 + $1,890 + $450 − $8,000 − $3,000 = $26,340.00
- Monthly payment: $442.77, with $5,539.75 of interest over the 72 payments
Sales tax and your trade-in
Where you live decides whether sales tax is charged on the full price or on the price after the trade-in, and the rules differ between states. In the example, taxing the full $35,000 instead adds $560 of tax: $2,450.00 rather than $1,890.00. The amount financed rises to $26,900.00 and the payment to $452.19. Choose the option that applies to you, or ask the dealer how the tax on your purchase was calculated.
In many countries, car prices already include VAT or GST. In that case leave the sales tax blank.
If you owe more than your trade-in is worth
When the loan on your current car is larger than its trade-in value, the difference, called negative equity, is usually added to the new loan. You then pay interest on the old car’s debt as well as the new one (Consumer Financial Protection Bureau).
For example, trading in a car worth $6,000 with $9,500 still owed adds $3,500 to a new $28,000 loan. With 5% tax, $300 of fees and 84 months at 9.9%, the payment is $544.48 instead of $486.56, and the old debt adds $1,365.76 of interest on top of the $3,500 itself.
How the loan term changes the cost
A longer term lowers the payment but raises the total interest. On $30,000 at 7%:
| Term | Monthly payment | Total interest |
|---|---|---|
| 48 months | $718.39 | $4,482.61 |
| 60 months | $594.04 | $5,642.12 |
| 72 months | $511.47 | $6,825.87 |
| 84 months | $452.78 | $8,033.53 |
A long term also means the loan balance can stay above the car’s value for longer, which matters if you sell or trade the car before the loan ends.
A 0% offer or a cash rebate?
Dealers sometimes offer a choice between 0% financing and a lower price. On a $30,000 car over 60 months, 0% means 60 payments of $500.00, $30,000.00 in total. Taking a $2,000 rebate instead and financing $28,000 at 6.5% costs $547.85 a month, $32,871.09 in total, so the 0% offer is cheaper at that rate. If you can get the $28,000 loan at 3% from a bank or credit union, the total is $30,187.39, and the two options are within about $190 of each other. Compare both with the calculator using the rate you can actually get.
Balloon payments
Some car finance, common in Australia and the UK, leaves a lump sum at the end, called a balloon, residual or guaranteed future value. On $40,000 at 8.5% over 48 months, a $15,000 balloon cuts the payment from $985.93 to $722.46, but interest rises from $7,324.74 to $9,677.93, and the final payment is $15,722.31. You’ll need to pay that from savings, by selling or trading the car, or by refinancing it.
Interest rate vs. APR
Enter the interest rate on the loan. The APR also includes certain fees, so it is usually higher, and it’s the better number for comparing offers. The Consumer Financial Protection Bureau’s auto loan terms explain APR and the other figures on a car loan offer.
Assumptions and limitations
- Sales tax is charged on the price, or on the price minus the trade-in, as you choose. Fees aren’t taxed, and rebates aren’t modeled separately.
- The interest rate is fixed. Interest is charged once per payment period at the yearly rate divided by the number of payments per year. Many car loans charge interest daily instead, which changes the total slightly.
- Payments are made in full and on time.
- Add-on products such as extended warranties or gap insurance are included only if you enter them as fees.
- Insurance, registration renewals, fuel and maintenance are not included in the total cost.
- Your finance contract has the final figures, including the exact amount financed.
Questions
What does “total cost of the car” include?
The price, sales tax, all fees (whether added to the loan or paid at signing) and the interest on the loan. It doesn’t include the down payment separately, because that is part of paying the price, and it doesn’t include negative equity, which is debt from your previous car. That shows in the breakdown instead. The interest is for the whole loan, so it does include the interest charged on any negative equity.
Can I pay off a car loan early?
Usually, but check the contract for a prepayment penalty. To see the effect of paying extra, open “Extra payments” here. If you already have a car loan, the Loan Payoff Calculator starts from your current balance.
Why is my dealer’s payment different?
The dealer’s figure may include items you haven’t entered, such as add-on products, different fees, or tax worked out another way, or it may use daily interest. Ask for the amount financed, the interest rate, the term and the fees in writing, then enter those here.