If you want to buy a new car and are considering taking a loan, this auto loan calculator will help you estimate the cost of borrowing. Our car loan calculator will also help you work out what the best loan deal is for you.
Auto Loan Calculator
Calculate your monthly car payment, total interest, and loan affordability
Loan Details
Payment Breakdown
Consider making a larger down payment to reduce your monthly obligation and total interest paid over the life of the loan.
Payment Affordability Scale
As a general rule, your total monthly auto payment should not exceed 10-15% of your monthly take-home pay. Consider insurance, fuel, and maintenance costs in your budget.
Loan Details & Comparison
Loan Term Comparison
Higher monthly payments but pay less interest overall
More affordable monthly payments but higher total interest
Try to keep your auto loan term as short as you can afford. Longer terms mean you'll pay more interest and may be "upside-down" on your loan (owing more than the car is worth) for a longer period.
Auto Loan Calculator: A Complete Guide to Financing Your Car
What is an Auto Loan?
An auto loan is a secured loan provided by a bank, credit union, or online lender specifically for the purchase of a vehicle. The car itself serves as collateral, meaning if you fail to make payments, the lender can repossess it. Auto loans are a common way for individuals to finance a new or used car without paying the full price upfront.
Key Auto Loan Terms to Know:
- Principal: The total amount of money you borrow.
- Interest Rate (APR): The annual cost of borrowing, expressed as a percentage. Your credit score heavily influences this rate.
- Loan Term: The length of time you have to repay the loan, typically ranging from 24 to 84 months.
- Down Payment: The initial cash payment you make to reduce the principal.
- Monthly Payment: The fixed amount paid each month, covering both principal and interest.
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How Does a Car Loan Work?
When you take out a car loan, the lender pays the seller for the vehicle (minus your down payment). You then repay the lender in monthly installments over the agreed term. Each payment chips away at the principal balance while also covering the interest charges, which are front-loaded in a process called amortization. This means you pay more interest at the beginning of the loan term.
The Steps to Getting a Car Loan:
- Check Your Credit Score: This determines your eligibility and interest rate. (Use a free credit score check service).
- Get Pre-Approved: Securing pre-approval from a lender gives you a spending limit and bargaining power at the dealership.
- Shop for Your Car: Use your pre-approval amount as a budget guide.
- Finalize the Loan: The lender will finalize terms based on the exact vehicle price.
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Car Loan Payment Formula
Understanding the math behind your monthly payment can make you a smarter borrower. The standard formula lenders use is:
M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1 ]
Where:
- M = Monthly payment
- P = Principal loan amount
- i = Monthly interest rate (annual rate ÷ 12)
- n = Total number of payments (loan term in months)
Why This Matters: This formula shows how your rate and term dramatically affect your payment. A lower rate or shorter term saves you money overall, even if the monthly payment is slightly higher.
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Car Loan Calculator – An Example of Calculations
Let’s use our auto loan calculator with realistic numbers.
Scenario: You want to buy a used car for $25,000. You have a $4,000 down payment and have been offered a 5.5% APR interest rate for a 60-month (5-year) loan.
- Principal (P): $25,000 – $4,000 = $21,000
- Monthly Interest Rate (i): 5.5% / 100 / 12 = 0.004583
- Number of Payments (n): 60
Calculation:
M = 21,000 [ 0.004583(1 + 0.004583)^60 ] / [ (1 + 0.004583)^60 – 1 ]
M = 21,000 [ 0.004583 * (1.316) ] / [ 1.316 – 1 ]
M = 21,000 * [0.00603 / 0.316]
M = 21,000 * 0.01909
M ≈ $401.00 per month
Total Loan Cost: $401 * 60 = $24,060.
Total Interest Paid: $24,060 – $21,000 = $3,060.
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How to Use the Auto Loan Payment Calculator?
Our integrated calculator makes this easy. Here’s how to get the most accurate estimate:
- Enter Vehicle Price: The total cost of the car before your down payment.
- Enter Down Payment: Input the cash amount you plan to pay upfront. Aim for at least 10-20% for a better loan-to-value ratio.
- Enter Loan Term: Use the slider or input box. Tip: Shorter terms (36-48 months) mean less interest paid overall.
- Enter Interest Rate (APR): Input your pre-approved rate or the average rate for your credit tier (Excellent: 3-5%, Good: 5-7%, Fair: 7-10%, Poor: 10%+).
- Calculate: View your estimated monthly payment, total loan cost, and total interest paid.
Experiment With Scenarios:
- See how increasing your down payment by $1,000 lowers your payment.
- Observe the significant interest savings when you choose a 48-month term vs. a 72-month term.
- Understand how a 2% difference in your APR affects the total cost.
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Pros and Cons of Taking an Auto Loan
Pros:
- Enables Car Ownership: Makes buying a reliable vehicle possible without large savings.
- Builds Credit: Consistent, on-time payments improve your credit history.
- Predictable Budgeting: Fixed monthly payments make it easy to plan your finances.
- Potential for Low Rates: With excellent credit, you can secure rates close to inflation.
Cons:
- Debt Obligation: Adds a fixed monthly expense, reducing financial flexibility.
- Long-Term Commitment: Defaulting can lead to repossession and credit damage.
- The Car Depreciates: The vehicle loses value quickly, often leading to being “upside-down” (owing more than the car is worth) on longer loans.
- Total Cost is Higher: You pay thousands extra in interest over the life of the loan.
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FAQs
Q: What is a good interest rate for a car loan?
A: As of 2024, a “good” rate is typically at or below the national average for your credit tier. Rates below 5% are excellent, while anything above 10% is considered high. Always shop around with multiple lenders.
Q: How much should I put down on a car?
A: A down payment of at least 20% is strongly recommended. For new cars, aim for 20% to avoid immediate negative equity. For used cars, 10% is a common minimum.
Q: What’s better: a longer or shorter car loan term?
A: A shorter term (36-48 months) is almost always better financially. You’ll pay much less in interest and own the car faster. A longer term (72-84 months) lowers the monthly payment but drastically increases total interest and risk of negative equity.
Q: Does applying for a car loan hurt my credit?
A: Lenders perform a “hard inquiry,” which may temporarily lower your score by a few points. However, multiple auto loan inquiries within a 14-45 day shopping window are typically counted as a single inquiry, so rate shopping is smart.
Q: Can I get a car loan with bad credit?
A: Yes, but you will face much higher interest rates. Consider saving for a larger down payment, getting a co-signer, or looking at “bad credit auto lenders” (cautiously) to secure a loan and rebuild credit.
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Conclusion: Empower Your Car-Buying Decision
Using an auto loan calculator is the most important first step in your car-buying journey. It removes the guesswork and allows you to make financially sound decisions based on your budget. Remember to focus on the total loan cost, not just the monthly payment, and always secure financing pre-approval before visiting the dealership. By understanding the terms, using the calculator, and weighing the pros and cons, you can confidently navigate the auto loan process and drive away in a car that fits both your needs and your financial life.
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