What goes into the loan amount and the monthly payment?
The calculator builds the loan in a fixed order. Taxable price is the vehicle price minus the trade-in value. Sales tax is that taxable price times your combined state and local rate. The loan amount is the price plus tax, minus the trade-in, minus the down payment. Cash down is applied after tax is figured, so it reduces what you borrow but not the tax itself.
Once the loan amount is set, the payment comes from the amortization formula. Each month interest is charged on the remaining balance at the annual rate divided by 12; the rest of the fixed payment goes to principal. Early payments are interest-heavy, and the mix shifts toward principal as the balance falls.
Total interest is every payment added together minus the loan amount. Total cost adds that interest to the price and the tax, which shows what the vehicle costs once financing is included, however the money reaches the seller.
Sales tax = (Price − Trade-in) × tax rate Loan amount = Price + Sales tax − Trade-in − Down payment M = L × r(1 + r)^n ÷ ((1 + r)^n − 1) Total interest = M × n − L Total cost = Price + Sales tax + Total interest
- L
- loan amount (amount financed)
- r
- monthly rate: annual interest rate ÷ 12
- n
- loan term in months
- M
- monthly principal-and-interest payment
Example: a $31,500 car with an $8,000 trade-in
Scenario: Say you agree on a $31,500 price, your trade-in is worth $8,000, you put $2,500 down, your combined sales tax rate is 6.5%, and you finance at 6.9% for 60 months.
- Taxable price$31,500 − $8,000 = $23,500.00
- Sales tax$23,500.00 × 6.5% = $1,527.50
- Loan amount$31,500 + $1,527.50 − $8,000 − $2,500 = $22,527.50
- Monthly rate6.9% ÷ 12 = 0.575% (0.00575)
- Monthly payment$22,527.50 × 0.00575 × 1.00575^60 ÷ (1.00575^60 − 1) = $445.01
- Total interest$445.01 × 60 − $22,527.50 = $4,173.10
- Total cost$31,500 + $1,527.50 + $4,173.10 = $37,200.60
The payment comes to about $445.01 a month, and the car costs $37,200.60 in all once tax and interest are counted.
In a state that taxes the full price with no trade-in credit, the tax would be $2,047.50 instead of $1,527.50, and the loan would grow by the difference.
When is this calculator most useful?
Before you walk into the dealership
Run your price, trade-in and a realistic rate at home so you know what payment the deal should produce. If the worksheet shows a higher number for the same inputs, ask what was added.
Weighing a trade-in against a private sale
Enter the trade-in offer, then try zero trade-in with a larger down payment equal to the private-sale price. The tax line shows how much of the trade-in's value comes from the sales tax credit in your state.
Choosing a term
Change only the term and watch total interest. Picking the shortest term whose payment fits your budget usually keeps borrowing costs lowest.
Checking a preapproval
Plug in the rate and term from a bank or credit union preapproval to see the payment you would carry before you shop. It gives you a firm number to compare against dealer-arranged financing.
What mistakes throw off a car payment estimate?
Using the sticker price instead of the out-the-door figure
Doc fees, title and registration, and add-ons such as service contracts are often rolled into the loan. This calculator leaves them out, so add them to the price if you plan to finance them.
Assuming every state gives a trade-in tax credit
Most states tax only the difference between the price and the trade-in, but some tax the full price. Check your state's motor vehicle or revenue agency so the tax line matches reality.
Forgetting what you still owe on the trade-in
The trade-in field should be its value, but any payoff above that value is still yours to cover. If the dealer adds it to the new loan, your loan amount is higher than this calculator shows.
Comparing offers by payment alone
A lower payment can come from a longer term rather than a better rate. Compare total interest and APR on the same term before deciding which offer is cheaper.
Mixing up interest rate and APR
The rate drives the payment math; the APR on your disclosure also folds in certain finance charges. When comparing lenders, compare APRs, then use the rate here to model the payment.
How much does a longer car loan term really cost?
A longer term lowers each payment by spreading principal over more months, but interest keeps accruing on a balance that shrinks more slowly. The table holds the loan amount from the example steady and changes only the term.
Going from 60 to 84 months drops the payment by $106.11 a month but adds $1,767.00 in interest. In practice the gap is often wider, because lenders tend to price longer terms at higher rates. Long terms also keep you owing more than the car is worth for longer, which matters if you need to sell or trade early.
| Term | Monthly payment | Total interest |
|---|---|---|
| 36 months | $694.55 | $2,476.30 |
| 48 months | $538.40 | $3,315.70 |
| 60 months | $445.01 | $4,173.10 |
| 72 months | $382.99 | $5,047.78 |
| 84 months | $338.90 | $5,940.10 |
What happens when you roll negative equity into a new loan?
Negative equity means you owe more on your current car than it is worth. Suppose the example trade-in is worth $8,000 but the payoff is $11,000. The dealer still credits $8,000 for tax purposes in most states, but the $3,000 shortfall has to go somewhere, and it is commonly added to the new loan.
That pushes the loan to $25,527.50. At the same 6.9% for 60 months the payment rises to $504.27, which is $59.26 more a month, and total interest climbs by $555.60. You are paying interest on a debt from a car you no longer own, and you start the new loan further underwater. Paying the shortfall in cash, waiting until the old loan is closer to paid off, or choosing a less expensive vehicle all shrink the problem.
Terms used on this page
- Loan Term
- The loan term is the length of time you have to repay a loan, usually stated in months for consumer loans. A longer term lowers the monthly payment but increases the total interest you pay, because the balance stays outstanding longer. A shorter term costs more each month and less overall.
- Down Payment
- A down payment is the cash you pay upfront toward a purchase, such as a car or home, so you borrow less. A larger down payment reduces the loan principal, the monthly payment and total interest, and it lowers the chance of owing more than the item is worth. It can also help you qualify for a better rate.
- Negative Equity
- Negative equity means you owe more on a loan than the asset securing it is worth. It is common with car loans because vehicles lose value quickly while long loan terms pay principal down slowly. If you sell or trade in with negative equity, you have to cover the gap, often by rolling it into a new loan.
- Amortization
- Amortization is the process of paying off a loan with equal, regular payments that each cover the interest due for the period plus a slice of principal. Early payments are mostly interest; later ones are mostly principal. By the final payment the balance reaches exactly zero, which is how most car, personal and student loans work.
- APR (Annual Percentage Rate)
- APR is the yearly cost of borrowing expressed as a single percentage that includes the interest rate plus certain required fees, such as origination charges. Because lenders must calculate it the same way under federal Truth in Lending rules, APR lets you compare loan offers on an even footing.
Car Loan Calculator: common questions
Does a car loan calculator include sales tax?
This one does: it applies your sales tax rate to the price minus the trade-in and adds the result to the loan. That mirrors how most states tax vehicle purchases and how most buyers pay the tax, by financing it. If you plan to pay the tax in cash at signing, add that amount to your down payment so the loan figure stays accurate.
How much does a trade-in lower my monthly car payment?
A trade-in lowers the payment by roughly the same amount a cash down payment would, plus a bit more in states that tax only the price after the trade-in. In the example above, the $8,000 trade-in also cuts the sales tax by $520 at a 6.5% rate. If you owe money on the trade-in, only the equity, value minus payoff, actually reduces what you borrow.
What is a reasonable car loan term?
Many buyers choose 36 to 60 months because total interest stays moderate and the balance falls faster than the car loses value. Terms of 72 or 84 months produce lower payments but cost more in interest and leave you owing more than the car is worth for longer. Pick the shortest term whose payment fits comfortably in your budget.
Should I put money down on a car or keep the cash?
A down payment reduces the loan amount, the payment and total interest, and it lowers the risk of owing more than the car is worth early on. Keeping cash has value too, especially if you lack an emergency fund. Compare the interest you would save at your loan rate with what that cash earns or protects you from elsewhere.
Why is my dealer's payment higher than this calculator shows?
The usual reason is extra items financed into the loan: documentation fees, registration, service contracts, gap coverage or other add-ons. A higher rate than you entered, or negative equity from a trade-in, also raises the payment. Ask for an itemized buyer's order and add each financed item to the price here to reconcile the numbers.
How is interest calculated on a car loan?
Most car loans use simple interest: each period's interest is the outstanding balance times the rate for that period, so it falls as you pay principal down. Many lenders accrue it daily between payments. This calculator uses the monthly equivalent, which gives a very close estimate when payments arrive on schedule.
Can I estimate a used car loan with this calculator?
Yes, the math is identical for new and used vehicles. What usually differs is the rate and the maximum term a lender will offer, since used-car loans often carry higher rates and older vehicles may qualify only for shorter terms. Enter the rate and term you were actually quoted for the specific vehicle.
Does a bigger down payment reduce the sales tax on a car?
Usually not. Sales tax is generally charged on the price minus any trade-in credit, and cash down does not change that base. This calculator follows that rule by subtracting the down payment after tax. A trade-in, by contrast, does lower the taxable price in most states. Manufacturer rebates are treated differently from state to state; some states tax the price before the rebate is applied.
What credit score do I need for a car loan?
There is no single cutoff; lenders set their own standards and price loans by risk. A higher score generally qualifies for a lower rate, and the difference in total interest can be large on a five- or six-year loan. Checking your credit reports for errors before you apply is free and can help.
Is it better to finance through the dealer or a bank?
Neither is always cheaper, which is why comparing both is worth doing. Dealers arrange financing through lenders and may be allowed to add to the rate the lender offers, while a bank or credit union preapproval gives you a firm rate to bring with you. Ask each for the APR on the same term and compare total cost.
Sources
- Auto loans — Consumer Financial Protection Bureau. Accessed October 17, 2026.
- Regulation Z (Truth in Lending), 12 CFR Part 1026 — Consumer Financial Protection Bureau. Accessed October 17, 2026.
- Credit reports and scores — Consumer Financial Protection Bureau. Accessed October 17, 2026.
We cite primary sources: regulators, central-bank data and federal agencies. Worked examples on this page are our own calculations, last checked October 17, 2026. See our methodology.