Car Loan Calculator

About this Car Loan Calculator

The Car Loan Calculator estimates a fixed monthly payment for an auto loan. It reduces the vehicle price by your down payment and trade-in value to find the amount financed, then applies the standard loan amortization formula over the chosen term in months.

A car loan's total cost depends on more than just the sticker price and interest rate; the down payment size and any trade-in value both directly reduce the amount actually financed, which is why comparing two loan offers requires looking at the full picture.

For related tasks, try Mortgage Calculator, Loan EMI Calculator or Simple Interest Calculator.

How the calculation works

Amount financed equals vehicle price minus down payment minus trade-in value. Monthly payment = P × r × (1+r)^n ÷ ((1+r)^n − 1), where P is the amount financed, r is the monthly interest rate and n is the term in months.

How to use it

1. Enter the vehicle price, down payment and trade-in value.
2. Enter the annual interest rate and loan term in months.
3. Calculate to see the monthly payment and total interest.

Practical example

A 25,000 vehicle with a 3,000 down payment and a 2,000 trade-in leaves 20,000 financed. At 7% annual interest over 60 months, the calculator returns the fixed monthly payment.

Financing 25,000 (after a down payment and trade-in on a 30,000 car) at 6% over 5 years results in a monthly payment of roughly 483, compared to about 509 per month over 4 years at the same rate, despite the shorter term costing less in total interest.

Things to double-check

Dealer-advertised low interest rates sometimes apply only to specific loan terms or credit tiers, and some dealers offer a choice between a low interest rate and a cash rebate, where the better overall deal depends on how long you keep the loan.

What your monthly payment includes

A car loan is paid back in equal monthly instalments on a reducing balance, so each payment covers that month's interest first and the rest reduces the amount you owe. The amount financed is the price minus your down payment and trade-in, plus any taxes or fees you choose to roll into the loan. For a 28,000 car with 4,000 down and a 2,000 trade-in, you borrow 22,000. At 7 percent a year over 60 months the payment is about 435.60, the total repaid is about 26,140 and the interest cost is about 4,140. In the early months most of each payment is interest, which is why paying a loan off early saves more than the monthly figure suggests.

Comparing loan terms

The term you choose changes both the payment and the total cost. Using the same 22,000 at 7 percent, a 48 month loan costs about 527 a month and 3,290 in interest, a 60 month loan costs about 436 and 4,140, and a 72 month loan costs about 375 and 5,000. The longer loan looks cheaper every month but costs roughly 1,700 more than the 48 month version. Longer terms also raise the risk of owing more than the car is worth, because cars lose value fastest in the first years. If you must stretch the term to afford the payment, it may be a sign that the car is more expensive than your budget allows.

Other costs to plan for

The loan payment is only part of the cost of owning a car. Add sales tax or import duty, registration, insurance (lenders usually require full cover while the loan is open), fuel, servicing, tyres and parking. Insurance premiums can differ widely between models, so get a quote before you sign. Some advisers suggest keeping the total of car costs to a modest share of your take-home pay, although the right figure depends on your other commitments. Check whether the lender charges a processing fee or a penalty for early repayment, and compare offers using the annual percentage rate, which includes fees, instead of the headline interest rate alone.

Larger down payment or longer loan?

Putting more money down reduces both the instalment and the interest. In the earlier example, adding 2,000 to the down payment lowers the loan from 22,000 to 20,000, which brings the monthly payment down from about 435.60 to about 396 and cuts the interest by roughly 375 over five years. Compare that saving with what else your cash could do, such as keeping an emergency fund. Promotional zero percent loans can be good, but some dealers offer a cash discount instead. Calculate both: a lower price financed at a normal rate is sometimes cheaper than the full price at zero percent.

Questions to ask before you sign

Ask for the total price including taxes, registration and fees, not just the monthly figure. Ask for the annual percentage rate and whether it is fixed. Find out whether there is a penalty for paying early, and whether add-ons such as extended warranties or insurance are being rolled into the loan, since financing them means paying interest on them too. Compare a manufacturer's low rate offer with a cash rebate, and check whether the offer needs an excellent credit rating. If you owe more on a trade-in than it is worth, ask how that gap is treated, because rolling it into a new loan makes the new debt larger than the car.

Worked example: financing a used car

Take a used car priced at 14,500. You pay 2,500 down, and fees of 400 are added to the loan, so you borrow 12,400. At 9.5 percent a year over 48 months, the monthly rate is about 0.79 percent and the payment works out to roughly 311.50. Over four years you repay about 14,950, so the interest is about 2,550, which is about 21 percent on top of the amount borrowed. If you take 60 months instead, the payment falls to about 260 but the interest rises to about 3,200. Running both options through the calculator shows what the lower payment really costs, and helps you decide whether the longer term is worth it.

New cars, used cars and depreciation

Cars lose value, and most of the loss happens early. Many sources suggest that a new car can lose around 15 to 20 percent of its price in the first year, and a good deal more within three years, although the figure depends heavily on the model. A three-year-old car has already taken much of that drop, so the buyer finances a smaller amount for similar transport. The risk with a new car and a small down payment is negative equity, where you owe more than the car is worth. Some lenders offer gap cover to protect against that. Compare the total cost of ownership, including insurance, fuel, servicing and likely resale value, not just the monthly payment.

How lenders decide your interest rate

The rate you are offered depends on your credit history, income, existing debts, the size of your down payment, the age of the vehicle and the length of the loan. Banks, credit unions, dealers and manufacturers each price differently, so comparing at least three offers is worthwhile. The difference between rates matters more than it seems: on a 22,000 loan over 60 months, a rate of 5 percent gives a payment of about 415, 7 percent gives about 436 and 9 percent gives about 457. The gap between the cheapest and the dearest is roughly 2,500 over the loan. Getting pre-approved before you visit a dealer gives you a number to compare with the dealer's offer.

Paying a car loan off early

Extra payments can shorten a loan and cut the interest. On a 22,000 loan at 7 percent over 60 months, the normal payment is about 435.60. Adding 50 a month brings the loan to an end in roughly 53 months instead of 60 and saves about 530 in interest. Before you do this, check that the lender applies the extra to principal and has no early repayment fee, and make sure you have an emergency fund first, since a car loan is rarely the highest-interest debt you can have. If you have credit card balances at a much higher rate, paying those first usually saves more than speeding up a car loan.

Key terms explained

The principal is the amount you borrow after the down payment and trade-in. The interest rate is the yearly cost of the loan as a percentage, while the annual percentage rate also includes fees and gives a fuller picture. The term is the length of the loan in months. Equity is the difference between what the car is worth and what you still owe, and negative equity means you owe more than the car is worth. Gap cover is an insurance product that pays the difference if the car is written off. A balloon payment is a large final payment due in some lease and finance plans.

Rules of thumb and quick checks

A popular guideline is the 20/4/10 rule: put 20 percent down, borrow for no more than four years and keep total car costs, including insurance and fuel, below about 10 percent of your gross income. As a quick estimate, a 60 month loan at 7 percent costs about 19.80 per month for every 1,000 borrowed, so 22,000 is roughly 436. Each extra year on the term lowers the payment but adds interest. If the dealer's quote is far from your own estimate, ask for a written breakdown of price, fees, insurance add-ons and the annual percentage rate.

Read the full guide

Want the background, a step-by-step example and the common mistakes? Read How to Calculate Loan EMI: Formula, Worked Example and Tips. Learn the EMI formula with a step-by-step example, see how interest and principal change monthly, and compare flat and reducing balance rates.

Frequently asked questions