How the car payment is worked out
The calculator first finds the amount you need to borrow, then applies the standard loan payment formula:
Payment = P × r ÷ (1 − (1 + r)−n)
Here r is the APR divided by 12 and n is the number of monthly payments. Sales tax is applied to the price after the trade-in is deducted. Rules differ by state, and in some places tax applies to the full price, so enter a slightly higher tax rate if that is the case where you live.
Example: how the term changes the cost
A $32,000 car with $4,000 down and 7% sales tax means financing $30,240. At a 7% APR:
| Term | Monthly payment | Total interest |
|---|---|---|
| 48 months | $724.13 | $4,518 |
| 60 months | $598.79 | $5,687 |
| 72 months | $515.56 | $6,880 |
Stretching from 48 to 72 months lowers the payment by about $209 but adds roughly $2,360 in interest. Longer loans also raise the chance of owing more than the car is worth, since cars lose value fastest in the first years.
What to check before you sign
- Compare APRs, not just payments. A dealer can hit any monthly payment by lengthening the term.
- Get pre-approved by a bank or credit union so you have a rate to compare against the dealer's offer.
- Look at the full cost of ownership: insurance, fuel, maintenance and registration are not part of the loan payment.
- Watch add-ons such as extended warranties or gap cover that get rolled into the loan and accrue interest.
Our guide to the 20/4/10 rule shows one way to decide how much car fits your income.