A car payment is not set by the sticker price. What you actually borrow is the price plus sales tax and fees, minus your down payment and whatever the dealer gives you for your old car. This calculator builds that number first, then amortizes it, so the payment matches what a lender would quote.
How it is calculated
- Sales tax = (price − trade-in) × tax rate. Most US states tax only the difference, which is why a trade-in is worth slightly more than its cash value.
- Amount financed = price + sales tax + fees − down payment − trade-in.
- Monthly payment = P × r ÷ (1 − (1 + r)−n), where P is the amount financed, r is the APR divided by 12 and n is the number of months. This is the standard amortizing formula used for simple-interest car loans.
- Total interest = payment × months − amount financed.
Example
A $35,000 car with $5,000 down and a $3,000 trade-in, 6% sales tax and $500 in fees. Tax is charged on $32,000, so $1,920. Amount financed: $35,000 + $1,920 + $500 − $5,000 − $3,000 = $29,420. At 7.1% over 60 months the payment is $583.94 and total interest $5,616. Stretch the same loan to 72 months and the payment drops to $503.00 while interest rises to $6,796.
Why the term matters more than the rate
Dealers often negotiate on the monthly payment rather than the price, and the easiest way to lower a payment is to add months. Each extra year adds interest and keeps you underwater for longer: a car typically loses about 20% of its value in the first year and roughly half in five, while a long loan pays down principal slowly at the start. If the payment only fits at 84 months, the car is too expensive.
Rate, APR and where to get the loan
Compare APR, not the interest rate, because APR includes lender fees. For a payment-by-payment breakdown of any loan, including the split between interest and principal, use the amortization calculator. Getting a pre-approval from a bank or credit union before you shop gives you a number to beat and separates the price negotiation from the financing. Dealer financing can be cheaper when a manufacturer subsidizes the rate, but a 0% offer often replaces a cash rebate, so compare the total cost both ways.
Frequently asked questions
How do I calculate a car payment?
Add sales tax and fees to the price, subtract your down payment and trade-in to get the amount financed, then apply the amortizing formula: payment = P × r ÷ (1 − (1 + r)^−n), with r the monthly rate and n the number of months.
Is sales tax charged on the trade-in?
In most US states, no. Tax is charged on the price minus the trade-in allowance, so a $3,000 trade-in at 6% tax saves another $180. A few states tax the full price; check your state before relying on the figure.
How much should I put down on a car?
Aim for 20% on a new car and 10% on a used one. That roughly matches first-year depreciation, so you avoid owing more than the car is worth and it lowers both the payment and the total interest.
Is a 72 or 84-month car loan a bad idea?
It lowers the payment but adds thousands in interest and keeps you in negative equity for years, which is a problem if the car is written off or you need to sell. If the payment only works over 72 or 84 months, consider a cheaper car.
Can I pay off a car loan early?
Simple-interest car loans, which is nearly all of them now, have no penalty and extra principal payments cut the interest directly. Older precomputed-interest contracts bake the interest in, so early payoff saves less. The contract says which you have.
Sources
- CFPB: What is amortization and how could it affect my auto loan?
- Federal Reserve G.19 Consumer Credit: commercial bank new-car loan rates — 7.14% on 60-month loans, Q1 2026
- CFPB: Auto loans
By Calcelate Team. Formula from the sources above.
- 2026-09-15 · Formula and texts checked