A car loan looks simple — a vehicle price, a down payment, a term, an interest rate — but several details quietly change the bottom line: sales tax, trade-in handling, the new-vs-used rate spread, and the very real risk of going "underwater" on a long-term loan as the car depreciates. This calculator handles all of those inputs and shows you both the monthly payment and the total cost of ownership over the loan term.
Below is the math the calculator uses, a worked example, and the four levers that move your payment most.
The car loan payment formula
The principal-and-interest portion uses the standard amortization formula:
M = P × [ r(1+r)n ] / [ (1+r)n − 1 ]
Where M is your monthly payment, P is the loan amount (vehicle price + sales tax − down payment − trade-in value), r is your monthly interest rate (annual APR ÷ 12), and n is the total number of monthly payments (term in years × 12). The same formula every U.S. auto lender uses.
Sales tax handling matters more than most buyers realize. In roughly 42 of 50 U.S. states, sales tax applies only to the difference between the vehicle price and your trade-in value (not the full price). On a $35,000 car with a $10,000 trade-in in a 6% sales-tax state, that rule saves you $600 in tax up front — a real number worth confirming with your dealer.
Worked example: a $30,000 new car
Suppose you're financing a $30,000 new vehicle with $3,000 down, no trade-in, a 60-month loan at 6.5% APR, and 6% sales tax:
Sales tax: $30,000 × 6% = $1,800
Total financed price: $30,000 + $1,800 = $31,800
Loan amount (P): $31,800 − $3,000 down = $28,800
Monthly rate (r): 6.5% ÷ 12 = 0.5417%
Number of payments (n): 60
Monthly payment: ~$563
Total interest paid: ~$5,180
Total cost (price + tax + interest): ~$36,980
Adding even a $5,000 trade-in to that scenario drops the loan to roughly $23,500, the payment to about $459/month, and saves around $300 in sales tax (in trade-in-credit states). That $5,000 trade is doing more than $5,000 of work because of the tax rule.
The four levers that decide your payment
1. New vs. used. Used-car APRs typically run 1.5–3 points higher than new-car rates because lenders see used vehicles as higher-risk collateral. On a $25,000 loan, a 2-point rate gap costs roughly $1,400 over a 5-year term. The depreciation curve usually offsets that for buyers who can find a 2–3-year-old used vehicle, but the calculator lets you compare both scenarios. See new vs. used car loans for the full break-even analysis.
2. Term length and the 60-month rule. The Consumer Federation of America and most personal-finance researchers recommend keeping car loans at 60 months or less. A 72-month loan on a $30,000 vehicle at 7% costs about $4,300 more in interest than a 48-month loan, and meaningfully raises the risk of going underwater (owing more than the car is worth). New cars commonly lose 20–30% of their value in the first two years; a long loan stretches the period during which your loan balance exceeds the car's market value.
3. Down payment. The standard recommendation is 20% down on new cars, 10% on used. The bigger the down payment, the smaller the loan and the lower the risk of being underwater. Going from $3,000 down to $6,000 down on the worked example above drops the monthly payment by about $58 and saves roughly $520 in interest.
4. Where you source financing. Dealer financing is the most convenient but often the most expensive. Banks and credit unions typically offer rates 1–3 points lower than the dealer's default offer, and a preapproval gives you negotiating leverage — the dealer knows you can walk. The FTC's auto-finance guidance recommends having a pre-approved rate in hand before stepping into any dealership. See our walkthrough on how car loan preapproval works.
Frequently asked questions
For new cars, excellent credit borrowers (720+) can get rates of 4.5 to 6%. Good credit (670–719) typically sees 6.5 to 8.5%. For used cars, add about 1.5 to 3% on top of new car rates. Rates above 12% for new cars or 17% for used are considered high — consider improving your credit score or getting pre-approved at a credit union.
Financial experts recommend keeping total car costs — including payment, insurance, gas, and maintenance — under 15% of your take-home pay. For the payment alone, aim for no more than 10% of gross monthly income. On a $60,000 salary, that's a maximum payment of about $500 per month, which finances roughly $25,000 to $28,000 over 60 months at current rates.
Be cautious with loans longer than 60 months. A 72-month loan on a $30,000 car at 7% costs about $4,300 more in interest than a 48-month loan. Longer loans also risk going "underwater" — owing more than the car is worth — because cars depreciate quickly. If you need a 72 or 84 month term to afford the payment, you're probably looking at too much car.
In most U.S. states (about 42 of 50), yes. You only pay sales tax on the difference between the new car price and your trade-in value. For example, buying a $35,000 car with a $10,000 trade-in means you pay tax on $25,000, saving $500 to $700 in tax depending on your state. This calculator accounts for this trade-in tax benefit.
Always get pre-approved at your bank or credit union before visiting a dealer. This gives you a baseline rate to compare against. Dealers sometimes offer competitive promotional rates (0% or low APR on new cars), but their standard rates are often 1 to 3% higher than banks. Having a pre-approval also gives you negotiating leverage — the dealer knows you can walk away with financing already in hand.
The standard recommendation is 20% down on a new car and 10% on a used car. This protects you from going underwater on the loan (owing more than the car is worth) since new cars lose 20 to 30% of value in the first two years. A larger down payment also gets you a lower interest rate and reduces the total amount you pay in interest over the loan term.