Auto Loan Calculator

What this calculator is, and when to reach for it

Car finance is the one loan most people negotiate face to face, under time pressure, in a room designed for the purpose. That is precisely why arriving with the arithmetic already done changes the conversation. The dealer’s question is almost always "what monthly payment are you looking for?", and answering it is how buyers end up with a longer term rather than a better price.

What makes an auto loan different from other borrowing is that the amount financed is not the sticker price. Sales tax is added, your deposit comes off, a trade-in comes off, and anything still owed on that trade-in goes back on. Those four adjustments routinely move the financed figure by thousands in either direction, and the last one catches people out constantly.

The other structural feature worth understanding is that the asset falls in value faster than the loan falls in balance, at least at first. That mismatch is the source of most auto finance regret, and it is entirely predictable from the numbers on this page.

Reach for it before visiting a dealer, when comparing finance offered in the showroom against a loan from your own bank, or when working out whether rolling negative equity from an existing car into a new deal is survivable.

Negative equity, and why it follows you

If you owe more on your current car than it is worth, that shortfall does not disappear when you trade it in. It is added to the new loan, so you begin the next car already owing more than it is worth. Dealers describe this as "we will pay off your trade", which is true and also means you will pay it off, with interest, over the next five years.

The arithmetic compounds. Each roll-over adds to the financed amount, which extends the period during which you are underwater, which makes the next trade-in worse. Two or three cycles produce loans where a substantial share of the balance relates to vehicles the borrower no longer owns.

This is the single most consequential thing the calculator can show you, and it is why the amount still owed on your trade-in belongs in the figures from the start rather than being discovered at signing.

Where to go next

To compare a dealer’s finance against an offer from your own bank, use the loan comparison calculator, and the APR calculator to convert rate-plus-fee offers into a single comparable figure. Dealer finance is sometimes genuinely cheaper thanks to manufacturer subsidy, so it is worth pricing both properly.

For the same fixed-rate arithmetic without the tax and trade-in adjustments, the personal loan calculator and the loan repayment calculator are simpler, and the latter shows what overpaying achieves.

If a mortgage application is on the horizon, check the effect first with the debt-to-income calculator — a car payment is one of the most common reasons a borrower fails the total-debt test in the qualification calculator.

How the financed amount and payment are worked out

The payment itself is ordinary amortization. The work is in arriving at the amount being financed.

financed = price + sales tax − deposit − trade-in value + trade-in balance owed

price

the agreed price of the vehicle before any adjustment

sales tax

charged on the price after the trade-in credit in most jurisdictions

trade-in value

what the dealer allows you for your current vehicle

trade-in balance owed

anything still outstanding on it, which is added to the new loan

Why tax is usually charged after the trade-in

In many jurisdictions sales tax applies to the price less the trade-in allowance rather than the full price, which makes a trade-in worth slightly more than its cash value. On a 32,000 car with a 6,000 trade-in at 7%, tax is charged on 26,000 rather than 32,000, saving 420.

This varies by country and by region, and some places tax the full price regardless. It is a small effect compared with the trade-in itself, but it is one reason a private sale is not automatically better than trading in.

The payment-first negotiation, and how it works

Any monthly payment can be reached by extending the term. A buyer who says "I want to be around 500 a month" has handed over the ability to negotiate on price, because the dealer can satisfy that figure at almost any price by lengthening the loan.

Negotiate the price of the car, the value of your trade-in, and the finance rate as three separate conversations, and treat the monthly payment as the output rather than the input. This calculator exists to let you compute that output yourself.

Why long terms are riskier than they look

Cars depreciate fastest in their early years while a loan repays principal slowest in the same period. On a long term the two curves diverge, and a buyer can spend years owing more than the vehicle is worth.

That matters the moment anything unexpected happens. Selling, an accident writing the car off, or simply wanting to change vehicle all become expensive when the balance exceeds the value, because the shortfall must be found in cash or rolled into the next loan.

What sits outside this calculation

Insurance, registration, servicing, tyres, fuel, and any extended warranty or protection product sold alongside the finance are not part of the loan and not modelled here. Several of those are frequently added to the financed amount at signing, which raises the balance and the payment together.

Manufacturer rebates and subsidised rates also change the picture and often cannot be combined — a choice between a cash rebate and a low rate is common, and which wins depends on the amount financed and the term.

What this page assumes

The calculator takes your down payment and trade-in value off the vehicle price, adds any sales tax and fees you are financing, adds back anything still owed on the trade-in, then works out a level monthly payment.

Sales tax is charged on the price after the trade-in credit, which is how most US states do it, and it is added to the loan rather than paid in cash. If you still owe more on the trade-in than it is worth, the shortfall is added to the new loan and carries the same rate. If the annual rate is zero, monthly payment equals amount financed divided by term months. Otherwise, the periodic monthly rate is annual rate divided by 12.

Worked examples, step by step

Take a 32,000 vehicle with 4,000 down, a trade-in valued at 6,000 with 2,500 still owing on it, sales tax at 7%, financed at 6.9% over 60 months.

Getting to the amount financed

The monthly payment is 519.93 and total interest over five years is 4,875.60. Note what the trade-in actually delivered: a 6,000 vehicle reduced the financed amount by only 3,500 net, because 2,500 of its value was consumed by the loan still attached to it.

Had the trade-in been owned outright, the financed amount would have been 23,820 and the payment 470.55 — nearly 50 a month lower for five years. That is the cost of carrying negative equity forward, and it is visible only if the outstanding balance is entered honestly.

What a longer term really buys

Stretching the same 26,320 from 60 to 72 months lowers the payment to roughly 446 and raises total interest to about 5,800. The buyer saves 74 a month and pays close to 900 more overall, while spending an extra year exposed to owing more than the car is worth.

This is the trade being offered whenever a dealer meets a monthly target by adjusting the term. It is not necessarily wrong, but it should be a decision rather than something that happens quietly while price is being discussed.

The vocabulary, on and around this page

Amount financed

The sum actually borrowed after tax, deposit, trade-in value, and any balance owed on the trade-in are applied.

Trade-in value

What a dealer allows for your existing vehicle. It reduces both the amount financed and, in many places, the taxable amount.

Trade-in balance

What you still owe on the vehicle you are trading. It is added to the new loan rather than written off.

Negative equity

Owing more on a vehicle than it is worth. Rolling it into a new loan carries the shortfall forward with interest.

Depreciation

The fall in a vehicle’s value over time, fastest in the early years. It is why long loans leave buyers underwater.

Underwater

The state of owing more than the vehicle would sell for. It makes selling, changing car, or a write-off expensive.

Sales tax

A transaction tax on the purchase, commonly charged on the price after the trade-in allowance rather than the full price.

Down payment

Cash paid up front. It reduces the amount financed directly and shortens the period spent underwater.

Dealer finance

Lending arranged through the seller. Sometimes subsidised by a manufacturer and genuinely cheap, sometimes marked up.

Buy rate

The rate a lender offers the dealer, before any markup added by the dealer as compensation for arranging the finance.

Manufacturer rebate

A cash incentive on the purchase, frequently offered as an alternative to a subsidised finance rate rather than alongside it.

Subsidised rate

A below-market finance rate funded by the manufacturer to support sales. Usually restricted to specific models and terms.

Payment-first negotiation

Discussing the monthly figure rather than the price. It lets a seller satisfy your target by extending the term instead of reducing cost.

Term

The number of months over which the loan runs. Longer terms lower the payment, raise interest, and extend exposure to depreciation.

Gap protection

Cover for the difference between what insurance pays on a write-off and what is still owed. Relevant precisely when you are underwater.

Extended warranty

A service contract sold alongside the vehicle. Often added to the financed amount, which means paying interest on it.

Amortization

The repayment schedule, with each payment covering interest first and reducing the balance with the remainder.

APR

The rate with certain fees included, expressed annually. The fair basis for comparing dealer finance against a bank loan.

Pre-approval

A finance offer arranged with your own lender before visiting a dealer. It provides a benchmark and strengthens your position.

Total cost of ownership

Finance plus insurance, fuel, servicing, and depreciation. The loan payment is only part of what a vehicle costs.

Common mistakes, and what this page will not do

• Negotiating on the monthly payment. Any payment can be reached by extending the term. Negotiate price, trade-in value, and rate separately, and treat the payment as the result.
• Ignoring what is still owed on the trade-in. A 6,000 trade-in with 2,500 outstanding reduces the financed amount by only 3,500. The shortfall is carried forward with interest.
• Rolling negative equity repeatedly. Each cycle adds to the financed amount and extends the period underwater, so a loan can end up covering cars you no longer own.
• Choosing a long term for the lower payment. Going from 60 to 72 months on the example saves 74 a month and costs about 900 more, plus a further year of owing more than the car is worth.
• Assuming dealer finance is always worse. Manufacturer-subsidised rates can genuinely beat a bank. Price both properly rather than assuming either way.
• Taking a rebate and a subsidised rate as given. They are frequently alternatives rather than a package. Which wins depends on the amount financed and the term.
• Financing add-ons without noticing. Warranties and protection products added at signing raise the balance and the payment, and you pay interest on them for the term.
• Arriving without a benchmark offer. A pre-approval from your own lender gives you a rate to measure against and removes the pressure to accept what is offered.
• Budgeting for the payment alone. Insurance, fuel, servicing, and depreciation sit outside the loan entirely and frequently exceed it.

What this calculator leaves out: This calculator does not include insurance, registration, servicing, fuel, warranties, or protection products, model manufacturer rebates or subsidised rate offers, apply region-specific tax rules, or estimate depreciation. It computes the amount financed and a fixed-rate payment from the figures you enter.

Frequently asked questions