Finance
Auto Loan Calculator
A car payment is M = P·i/(1−(1+i)^−n) — but P is not the sticker price. Enter the negotiated price, sales tax, fees, cash down and your trade-in for the amount actually financed, the monthly payment, the total interest, and how many months the loan stays bigger than the car is worth.
Your deal
Solve for
The negotiated price, before tax and fees
$
State plus local, combined
%
Doc, title, registration
$
What you bring
Money that never gets financed
$
What the dealer allows
$
Payoff on the old loan
$
Sales tax is charged on
Most states give a trade-in tax credit. A handful — California and Virginia among them — tax the full price.
The loan
The rate on the new loan
%
Term
The five terms dealers quote
Monthly payment · 60 months
$687.30
$34,300 financed at 7.50% APR
Principal $34,300Interest $6,93816.8% of what you pay is interest
Underwater for about 11 months
Worst gap $426 around month 12; equity turns positive in month 16.
Amount financed
$34,300
Out-the-door price
$37,800
Sales tax
$2,100
Total interest
$6,938
Total of payments
$41,238
True cost with down
$44,738
Try a scenario
No sign-up · Free
This deal across every term
Tap a row to load it above| Term | Payment | Total interest | Extra vs shortest | Months underwater |
|---|---|---|---|---|
| 36 moleast interest | $1,066.94 | $4,110 | — | none |
| 48 mo | $829.34 | $5,508 | +$1,398 | none |
| 60 mo | $687.30 | $6,938 | +$2,828 | 11 |
| 72 mo | $593.05 | $8,400 | +$4,290 | 27 |
| 84 mo | $526.10 | $9,893 | +$5,783 | 44 |
Stretching the same loan from 36 mo to 84 mo cuts the payment by $540.84 a month and adds $5,783 of interest. Months underwater use the depreciation assumption stated below the chart.
What you owe vs what the car is worth
11 months underwater Loan balance Vehicle value Underwatermonth 0 → 60
Value assumes the car loses 20% in the first year and 15% of whatever is left each year after — a reasonable average, not a valuation of your car. Where the balance line sits above the value line you would have to write a cheque to walk away.
The basics
What an auto loan actually finances
A car loan is an ordinary fixed-rate instalment loan: one level payment every month until the balance is gone. Everything that makes auto financing confusing happens before the formula — in deciding what number goes into it.
M = P·i ÷ (1 − (1 + i)^−n)
One level payment, secured by the car
The payment M never changes, but its make-up does: interest is charged on the balance outstanding, so the early payments are mostly interest and the late ones almost all principal. Because the lender holds the title, the rate sits far below an unsecured personal loan — and the car can be repossessed.
$31,520.00 at 7.50% over 60 months → $631.60 a month
P is not the sticker price
Tax and fees go up, cash and trade go down
The amount financed P is the negotiated price plus sales tax plus dealer fees, less your cash down payment and the equity in your trade-in. Two deals with the same sticker price and the same rate can carry very different payments purely because of what happens in that line.
$32,000 price → $34,520.00 out the door → $31,520.00 financed
The deal sheet
From the negotiated price to the amount financed
The same $32,000 car, line by line. Negotiate the out-the-door price rather than the monthly payment: a dealer can hit almost any payment you name by lengthening the term, and the total you hand over moves in the opposite direction while you nod along.
| Line | Amount | What it is |
|---|---|---|
| Negotiated vehicle price | $32,000 | The number you agreed, before anything else touches it |
| Sales tax at 6% | + $1,920.00 | Charged on the price, or on the price less the trade-in |
| Title, registration and doc fees | + $600 | Some are statutory, some are pure dealer margin |
| Out-the-door price | $34,520.00 | What the car costs before you put anything toward it |
| Cash down payment | − $3,000 | The only money in the deal not financed at your APR |
| Trade-in equity | − $0 | Allowance less the payoff; negative equity is added instead |
| Amount financed (P) | $31,520.00 | The figure the payment formula actually runs on |
At 7.50% over 60 months that finances to $631.60 a month, $37,895.77 of payments and $6,375.77 of interest — 16.8% of everything you hand over.
Method
How to work out a car payment by hand
Six steps take you from a window sticker to the payment, the total, and the one number the dealer will not volunteer.
- 1
Find the base your state actually taxes
Sales tax is charged on the negotiated price, not the sticker, and in most states on the price less the trade-in allowance. That trade-in credit is a real discount on the tax bill, not just on the loan, and a handful of states do not offer it.
$32,000 × 6% = $1,920.00 tax - 2
Add tax and fees for the out-the-door price
The out-the-door price is what the car really costs before anything is put toward it: price plus tax plus title, registration, documentation and any financed add-ons. This is the number to negotiate on, because it is the only one a dealer cannot rearrange.
$32,000 + $1,920.00 + $600 = $34,520.00 - 3
Subtract cash down and trade-in equity to get P
The amount financed P is the out-the-door price less everything you bring to the table. Trade-in equity is the allowance minus what you still owe on it — and when that is negative, the shortfall is added to the loan instead of subtracted from it.
$34,520.00 − $3,000 = $31,520.00 financed - 4
Convert the APR to a monthly rate
Divide the annual rate by twelve for the periodic rate i, and use the term in months directly as n. Auto loans are quoted in months for exactly this reason.
i = 7.50% ÷ 12 = 0.00625 · n = 60 - 5
Apply the level-payment formula
The payment M is the one figure that drives the balance to exactly zero on the final payment. Interest is charged on the balance outstanding, so early payments are mostly interest and later ones mostly principal.
M = P·i ÷ (1 − (1 + i)^−n) = $631.60 - 6
Total the payments, then check the car against the loan
Multiply the payment by the number of payments for everything you hand back, and subtract P for the interest. Then compare the balance each month against what the car is worth — the gap between those two lines is the part no payment calculator shows.
$631.60 × 60 = $37,895.77 · interest $6,375.77
Worked examples
One car, five terms
The same $32,000 car at 7.50% with $3,000 down, priced across every term a dealer will offer. Switch tabs and watch the payment fall while the interest — and the time spent underwater — climbs.
Given price $32,000, tax 6.00%, fees $600, down $3,000, APR 7.50%, n = 60
Sales tax: $32,000 × 6.00% = $1,920.00
Out the door: $32,000 + $1,920.00 + $600 = $34,520.00
Amount financed P: $34,520.00 − $3,000 = $31,520.00
Monthly rate: i = 7.50% ÷ 12 = 0.00625
Apply M = P·i ÷ (1 − (1 + i)−n): $31,520.00 × 0.00625 ÷ (1 − 1.00625−60)
M = $631.60
total interest $6,375.77 · total paid $37,895.77Against the 36-month loan this saves $348.87 a month and costs $2,598.92 more in interest, and it spends about 12 months underwater.
Term length
What each extra year of term really costs
The payment falls smoothly as the term stretches, and the interest does not. That asymmetry is the whole reason long terms are offered: the number the buyer is watching improves while the number the lender is watching improves faster.
| Term | Monthly payment | Total interest | Extra vs 36 mo | Total of payments | Months underwater |
|---|---|---|---|---|---|
| 36 mo | $980.47 | $3,776.85 | — | $35,296.85 | none |
| 48 mo | $762.12 | $5,061.71 | +$1,284.86 | $36,581.71 | none |
| 60 mo | $631.60 | $6,375.77 | +$2,598.92 | $37,895.77 | 12 |
| 72 mo | $544.98 | $7,718.87 | +$3,942.02 | $39,238.87 | 28 |
| 84 mo | $483.46 | $9,090.85 | +$5,314.00 | $40,610.85 | 45 |
$32,000 at 7.50% with $3,000 down. Going from 36 mo to 84 mo saves $497.01 a month and costs $5,314.00 more in interest.
the payment is not the price
Negotiate out the door, not per month
A monthly payment has two inputs the buyer does not control and one the dealer will happily adjust. Naming a payment tells the desk exactly how much room it has; naming an out-the-door price does not.
A $483.46 payment can mean $31,520.00 over 84 mo or far more over a longer one
term outliving the warranty
The repairs arrive while you are still paying
A long loan does not just cost more interest — it puts the expensive years of ownership inside the repayment period, so a major repair lands on top of a payment rather than after it.
A 84 mo loan runs years past a typical factory bumper-to-bumper term
Down payment
What every extra dollar down is worth
A down payment is the only money in a car deal that is not being borrowed at your APR, so it does three things at once: it cuts the payment, it cuts the interest, and it shortens the stretch where the loan is bigger than the car.
| Cash down | Amount financed | Monthly payment | Total interest | Interest saved | Months underwater |
|---|---|---|---|---|---|
| $00% | $34,520.00 | $691.71 | $6,982.60 | — | 26 |
| $1,6005% | $32,920.00 | $659.65 | $6,658.96 | $323.64 | 22 |
| $3,20010% | $31,320.00 | $627.59 | $6,335.31 | $647.29 | 9 |
| $6,40020% | $28,120.00 | $563.47 | $5,688.03 | $1,294.57 | none |
| $9,60030% | $24,920.00 | $499.35 | $5,040.74 | $1,941.86 | none |
$32,000 at 7.50% over 60 months. The classic twenty percent rule is really an underwater rule: it puts enough cash in on day one that first-year depreciation cannot overtake the balance.
down payment vs rate
Cash beats a rate cut at these numbers
A larger down payment reduces every future interest charge, because interest is charged on the balance and the balance starts smaller. It also protects you from the one risk a low rate does nothing about: a total loss while the loan exceeds the value.
$6,400 down removes $1,294.57 of interest on this deal
solve backwards from a budget
What a monthly budget actually buys
Reversing the formula is the honest way to shop: fix the payment you can carry, then let the tax, fees, down payment and rate decide the price. Switch the calculator above to the budget mode to do it on your own numbers.
$500 a month at 7.50% over 60 months, with $3,000 down, supports about $25,804 of car
Trade-in and tax
Why a trade-in is worth more than the allowance
In most states, sales tax is charged on the price less the trade-in allowance, so trading a car in cuts the tax bill as well as the loan. That credit is the reason a private sale has to beat the dealer's offer by more than the difference in price before it is actually the better deal.
| $8,000 trade-in on a $32,000 car | Taxable amount | Sales tax | Amount financed | Monthly payment | Total interest |
|---|---|---|---|---|---|
| Trade-in credit (most states) | $24,000 | $1,440.00 | $23,040.00 | $461.67 | $4,660.46 |
| Tax on the full price | $32,000 | $1,920.00 | $23,520.00 | $471.29 | $4,757.55 |
The credit is worth $480.00 here — the trade-in allowance times the tax rate. Sell privately instead and you need to clear $8,480 to be even.
No trade-in tax credit
- California
Tax applies to the full selling price.
- Hawaii
General excise tax on the full price.
- Kentucky
Usage tax on the full retail price.
- Maryland
Excise tax on the full price.
- Virginia
Motor vehicle sales and use tax on the full price.
- District of Columbia
Excise tax on the full fair market value.
- Michigan
Credit allowed, but capped at a statutory maximum.
No statewide sales tax
- Alaska
No state rate; some boroughs levy a local tax.
- Delaware
No sales tax, but a document fee applies to the purchase.
- Montana
No sales tax; county option taxes exist in resort areas.
- New Hampshire
No sales tax; registration is charged by value.
- Oregon
No sales tax; a small privilege tax applies to new vehicles.
Tax law changes and local rates stack on top of state rates, so confirm both with your state revenue department before relying on a figure. The calculator above lets you switch the tax base between the two rules.
Negative equity
When the loan is bigger than the car
A new vehicle loses roughly 20% of its value in the first twelve months and about 15% of whatever is left each year after. A loan balance does not fall that fast at the start, so almost every low-down-payment car loan spends a stretch underwater — owing more than the car would sell for.
value falls faster than the balance
Why it happens even on a good deal
Depreciation is front-loaded and amortization is back-loaded. The two curves cross somewhere in the middle of a normal term, and the whole art of structuring a car deal is making that crossing happen sooner.
On the example deal the gap is worst at about $522 around month 12; equity turns positive in month 16
rolling the shortfall forward
Trading in a car you still owe on
When the payoff exceeds the allowance, the difference is added to the new loan rather than subtracted from it. The new car starts underwater on the day you drive it away, and you are paying interest on a vehicle you no longer own.
Trading a $10,000 car with $15,000 owed adds $5,000 to the new loan → $621.06 a month over 72 months
The depreciation curve this page uses
A well-behaved average rather than a valuation — real cars vary enormously by make, mileage and market. It is stated openly because every underwater figure on the page depends on it.
| Months owned | 0 | 6 | 12 | 24 | 36 | 48 | 60 | 72 | 84 |
|---|---|---|---|---|---|---|---|---|---|
| Share of price retained | 100% | 89% | 80% | 68% | 58% | 49% | 42% | 35% | 30% |
| Value of a $32,000 car | $32,000 | $28,622 | $25,600 | $21,760 | $18,496 | $15,722 | $13,363 | $11,359 | $9,655 |
gap insurance
What covers the shortfall in a total loss
A comprehensive policy pays what the car was worth, not what you owe. Where the loan exceeds the value, guaranteed asset protection covers the difference — which is worth buying precisely for the months the underwater column is not empty, and worth cancelling once it is.
the fastest way out
Shorten the term or raise the deposit
Only two levers move the underwater period much: a bigger down payment, which starts the balance lower, and a shorter term, which drops it faster. Overpaying each month works too, and behaves exactly like a shorter term you can back out of.
Zero percent or cash
The 0% financing versus rebate decision
Manufacturers usually make you choose one or the other: subsidised financing at 0%, or cash off the price with your own lender's rate. The rebate shrinks the principal and the 0% shrinks the rate, so the winner depends entirely on the APR you can get elsewhere — and there is an exact rate at which the two cost the same.
The 0% APR crossover
$
$
%
Term
Take the 0% financing
cheaper$30,000 financed at 0.00%
$500.00per month
Total paid $30,000.00
Take the rebate, finance elsewhere
$27,000 financed at 7.00%
$534.63per month
Total paid $32,077.94
The 0% financing wins by $2,077.94 over 60 months. The crossover sits at 4.23%: below that rate, taking the cash and financing it yourself is cheaper; above it, the free money is.
Schedule
Where each car payment goes
The payment is level; its split is not. Interest is charged on the balance outstanding, so the first payments are heavily interest and the last are almost entirely principal. That front-loading is why paying extra early is worth so much more than paying extra late, and why the balance falls slowly in exactly the months the car is depreciating fastest.
60 payments · 5y
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $631.60 | $434.60 | $197.00 | $31,085.40 |
| 2 | $631.60 | $437.31 | $194.28 | $30,648.09 |
| 3 | $631.60 | $440.05 | $191.55 | $30,208.05 |
| 4 | $631.60 | $442.80 | $188.80 | $29,765.25 |
| 5 | $631.60 | $445.56 | $186.03 | $29,319.69 |
| 6 | $631.60 | $448.35 | $183.25 | $28,871.34 |
| 7 | $631.60 | $451.15 | $180.45 | $28,420.19 |
| 8 | $631.60 | $453.97 | $177.63 | $27,966.22 |
| 9 | $631.60 | $456.81 | $174.79 | $27,509.41 |
| 10 | $631.60 | $459.66 | $171.93 | $27,049.75 |
| 11 | $631.60 | $462.54 | $169.06 | $26,587.21 |
| 12 | $631.60 | $465.43 | $166.17 | $26,121.79 |
| Month | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 49 | $631.60 | $586.10 | $45.50 | $6,693.93 |
| 50 | $631.60 | $589.76 | $41.84 | $6,104.17 |
| 51 | $631.60 | $593.45 | $38.15 | $5,510.72 |
| 52 | $631.60 | $597.15 | $34.44 | $4,913.57 |
| 53 | $631.60 | $600.89 | $30.71 | $4,312.68 |
| 54 | $631.60 | $604.64 | $26.95 | $3,708.04 |
| 55 | $631.60 | $608.42 | $23.18 | $3,099.62 |
| 56 | $631.60 | $612.22 | $19.37 | $2,487.40 |
| 57 | $631.60 | $616.05 | $15.55 | $1,871.35 |
| 58 | $631.60 | $619.90 | $11.70 | $1,251.45 |
| 59 | $631.60 | $623.77 | $7.82 | $627.67 |
| 60 | $631.60 | $627.67 | $3.92 | $0.00 |
| Year | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| 1 | $7,579.15 | $5,398.21 | $2,180.94 | $26,121.79 |
| 2 | $7,579.15 | $5,817.29 | $1,761.86 | $20,304.50 |
| 3 | $7,579.15 | $6,268.90 | $1,310.25 | $14,035.60 |
| 4 | $7,579.15 | $6,755.57 | $823.58 | $7,280.02 |
| 5 | $7,579.15 | $7,280.02 | $299.13 | $0.00 |
36 payments sit between the two windows.
$31,520.00 financed at 7.50% over 60 months — $631.60 a month, $6,375.77 of interest. The first payment is $197.00 interest and $434.60 principal; the last is $3.92 interest and $627.67 principal.
Quick chart
Car payments by amount financed, rate and term
Pick an amount financed and read the monthly payment — or the total interest, or everything you repay — at every rate from 2% to 20% across the five terms dealers quote. Auto rates spread far wider than mortgage rates, because the credit tier rather than the bond market sets most of the number.
Amount financed
Show
Monthly payment on $30,000, by rate and term.
| Rate | 36 mo | 48 mo | 60 mo | 72 mo | 84 mo |
|---|---|---|---|---|---|
| 2.00% | $859 | $651 | $526 | $443 | $383 |
| 3.00% | $872 | $664 | $539 | $456 | $396 |
| 4.00% | $886 | $677 | $552 | $469 | $410 |
| 5.00% | $899 | $691 | $566 | $483 | $424 |
| 6.00% | $913 | $705 | $580 | $497 | $438 |
| 7.00% | $926 | $718 | $594 | $511 | $453 |
| 8.00% | $940 | $732 | $608 | $526 | $468 |
| 9.00% | $954 | $747 | $623 | $541 | $483 |
| 10.00% | $968 | $761 | $637 | $556 | $498 |
| 12.00% | $996 | $790 | $667 | $587 | $530 |
| 14.00% | $1,025 | $820 | $698 | $618 | $562 |
| 16.00% | $1,055 | $850 | $730 | $651 | $596 |
| 18.00% | $1,085 | $881 | $762 | $684 | $631 |
| 20.00% | $1,115 | $913 | $795 | $719 | $666 |
Figures are on the amount financed — the price after sales tax and fees, less your down payment and trade-in equity. Use the calculator at the top of the page to get from a sticker price to that number.
Reference
What rate your credit tier attracts
The bands below are how the auto-finance industry itself segments borrowers. The rate levels are illustrative and move with the bond market; the durable facts are the shape — roughly a tripling from the top band to deep subprime, and a used-car premium of two to five points on the same file.
| Tier | FICO range | New car APR | Used car APR | Payment on $31,520 | Interest over 60 months |
|---|---|---|---|---|---|
| Superprime | 781–850 | 5.25% | 7.25% | $598.44 | $4,386.29 |
| Prime | 661–780 | 6.90% | 9.30% | $622.65 | $5,838.86 |
| Near prime | 601–660 | 9.80% | 13.50% | $666.61 | $8,476.55 |
| Subprime | 501–600 | 13.20% | 18.90% | $720.41 | $11,704.48 |
| Deep subprime | 300–500 | 15.80% | 21.60% | $763.16 | $14,269.58 |
Same car, same term, same down payment — $31,520.00 financed. The spread from superprime to subprime is $7,318.19 of interest on one ordinary car. A preapproval from a bank or credit union before you visit the dealer is the cheapest way to find out which row you are in.
Fees
What the line items on the sheet actually are
Everything between the negotiated price and the out-the-door price, and which parts of it you can argue with. Anything financed here is borrowed at your APR for the whole term, so an optional add-on costs meaningfully more than its sticker.
- Documentation fee
The dealer's charge for preparing the paperwork. Capped by law in some states and completely unregulated in others, which is why it swings from token to eye-watering.
- Title and registration
State charges for transferring the title and issuing plates. Genuinely non-negotiable, and usually the smallest line on the sheet.
- Destination charge
The manufacturer's cost of shipping the vehicle to the dealer. It is printed on the window sticker and is not a dealer add-on.
- Dealer add-ons
Paint protection, fabric sealant, nitrogen tyres, VIN etching. These are optional, high-margin, and the easiest item on the sheet to remove.
- Extended warranty and GAP
Optional products that are often financed alongside the car, quietly raising the amount financed and the interest you pay on it.
Where it shows up
What the payment does not cover
A car payment is the affordable-looking part of owning a car. Three costs sit outside it entirely, and together they usually exceed it.
Insurance
A financed car must carry comprehensive and collision cover, which is materially more expensive than the liability-only policy an owned car can run.
Depreciation
The largest cost of owning a new car and the only one with no invoice. It is spent whether you drive the car or not.
Fuel and maintenance
Tyres, brakes, fluids and fuel scale with mileage, and a long loan usually outlives the factory warranty that was covering the expensive failures.
Worth knowing
Six things that decide the deal
None of these show up in the advertised rate, and each is worth more than a point of interest on a normal car deal.
preapproval before the showroom
Arrive with a rate in your pocket
A credit-union or bank preapproval turns the dealer's finance office into a competitor rather than the only option. Dealers can and often will beat it, which is exactly the point — you cannot be beaten to a number you never brought.
buy rate versus contract rate
Dealer reserve is a markup you can question
A dealer submits your application to lenders, receives a rate back, and may add a margin before quoting you. It is legal and disclosed only as part of the APR, so the only defence is a competing offer.
Ask what the lender's buy rate was, then ask what is being added to it
add-ons financed at your APR
The four-square and the F&I office
Paint protection, fabric sealant, VIN etching and appearance packages are the highest margin items in the building. Financed over a long term at a subprime rate, a four-figure add-on can cost half as much again by the end.
new versus used pricing
Used cars carry a rate premium
Used collateral is harder to value and easier to lose money on, so the same borrower pays more for it. The trade is usually still worth it, because the first owner already absorbed the steepest part of the depreciation curve.
Around 2.40% more for a prime borrower in the illustrative bands above
refinancing after twelve months
You can re-shop the loan, not the car
If your score has improved or you accepted the dealer's first offer under pressure, a refinance can cut the rate without touching the vehicle. Check that the new term is not quietly longer, which undoes the saving.
full-coverage insurance is compulsory
Financing changes the policy
A lienholder requires comprehensive and collision cover for the life of the loan, which costs materially more than liability alone. Get a quote for the specific car before you sign — insurance can differ by hundreds a year between two similar models.
How we calculate this
The formula and our assumptions
We build the amount financed from the deal sheet, then run it through the standard amortizing-loan formula. We show the working so you can check it.
financed = out-the-door − down − trade equity
The amount financed
Sales tax and dealer fees add to the price; your cash down payment and your trade-in equity subtract. What is left, P, is the sum the loan actually carries — not the sticker price.
M = P·i ÷ (1 − (1 + i)^−n)
The monthly payment
P is the amount financed, i the APR divided by twelve, and n the term in months. The payment is fixed for the life of the loan.
- Sales tax is applied to the price, less the trade-in credit where the state allows it.
- The APR is fixed for the term; we model only the rate you enter, not a specific promo.
- Negative equity is rolled into the new loan when you enter it.
- The equity view uses an industry-average depreciation curve — real resale value varies by model and condition.
Where to finance the car
Where to shop for the loan
A preapproval before you visit the dealer is your strongest bargaining chip. Rows are ordered by borrower fit, not by any payout — the type that suits your situation comes first for you. Rates are shown as ranges only; get an exact quote, because pricing depends on your credit and the vehicle.
| Where | Examples | Best for | Typical pricing |
|---|---|---|---|
| Online marketplace | LendingTree, Credit Karma | Comparing several lenders before you visit the dealer | Market range |
| Credit union | Member-owned lenders | Lower rates and member pricing | Often below market |
| Bank | Your existing bank | A preapproval and an existing relationship | Market range |
| Dealer financing | Manufacturer captive lenders | Manufacturer 0% or low-APR promotions | Promo or market |
CalculateThis.io is not a lender and does not make credit decisions. When we add lender links they will be marked as sponsored, and we may earn a commission if you apply through one — it does not change the rate you are offered.
Sources
Where the method comes from
- Consumer Financial Protection Bureau — auto loans and financing.
- Federal Trade Commission — buying and financing a car; the dealer buyer's guide.
- Standard amortization formula for a fixed-rate instalment loan.
FAQ
Common questions
Add sales tax and dealer fees to the negotiated price, subtract your cash down payment and your trade-in equity, and run what is left through the level-payment formula M = P·i ÷ (1 − (1 + i)^−n), where i is the APR divided by twelve and n is the term in months. On a $32,000 car with 6% sales tax, $600 of fees and $3,000 down, the amount financed is $31,520.00, and at 7.50% over 60 months the payment is $631.60. The single most common mistake is running the sticker price through the formula instead of the amount financed.
In most US states, yes: sales tax is charged on the price less the trade-in allowance, so trading a car in cuts the tax bill as well as the loan. On a $32,000 car with a $8,000 trade-in at 6%, the credit is worth $480.00 — the tax falls from $1,920.00 to $1,440.00. A handful of states tax the full selling price and give no credit at all, California and Virginia among them, and a few states have no sales tax to credit. Selling the car privately usually nets more than the dealer's allowance, but in a trade-in-credit state you have to clear the tax saving first for that to be true.
You are upside down — or underwater — when the loan balance is larger than the car is worth, so selling it would not repay the debt. It happens because a new vehicle loses roughly 20% of its value in the first year while the loan balance falls slowly, and it lasts longer the smaller the down payment and the longer the term. On the $32,000 example above with $3,000 down over 60 months, the loan is underwater for about 12 months and equity turns positive in month 16. With nothing down over 84 months it is far worse.
Enough that the loan never gets far ahead of the car's value — as a rule of thumb, twenty percent on a new vehicle and ten on a used one. On the example deal, putting 20% down ($6,400) leaves $28,120.00 financed and a $563.47 payment against $691.71 with nothing down, and it removes $1,294.57 of interest over the term. The down payment is also the only part of the deal that is not being financed at your APR, which makes it the cheapest money in the transaction.
It is a lower payment bought with a much bigger bill and a much longer stretch of negative equity. On the example deal, stretching from 36 mo to 84 mo cuts the payment from $980.47 to $483.46 but raises the interest from $3,776.85 to $9,090.85, and the loan spends roughly 45 months underwater instead of 0. Long terms also tend to outlive the factory warranty, so the expensive repairs arrive while you are still paying. If the only way the car fits the budget is 84 mo, the honest conclusion is that it is the wrong car.
It depends entirely on the rate your own bank or credit union will quote. The rebate shrinks the amount financed; the 0% offer shrinks the interest rate. Below a crossover APR, taking the cash and financing it yourself costs less; above it, the free money wins. The crossover moves with the size of the rebate and the length of the term — a big rebate on a short term is very hard for 0% to beat. The comparison tool on this page solves for the exact break-even rate on your numbers. Also check that 0% financing is not restricted to the shortest term, which is a common way of making it look better than it is.
Almost any score can be financed — the question is at what price. Superprime borrowers (781–850) are quoted around 5.25% on a new car in the illustrative bands on this page, while subprime borrowers (501–600) are quoted around 13.20%, and used-car rates run several points above new. On the $31,520.00 financed in the example, that spread is the difference between $4,386.29 and $11,704.48 of interest over 60 months. Getting a preapproval from a credit union before you visit the dealer is the cheapest hour of work available.
Most lenders will, up to a loan-to-value limit, and it is usually a mistake. The shortfall is added to the new loan, so you pay interest on a car you no longer own. Trading a $10,000 car with $15,000 still owed adds $5,000 to the new balance: the amount financed becomes $35,920.00, the payment $621.06 over 72 months, and the new loan starts underwater on day one and stays there for about 42 months. Keeping the old car until the balance clears, or paying the gap in cash, both cost less.
On most auto loans they are the same number, because dealers and lenders rarely charge an origination fee on the financing itself. Where they diverge is when a finance charge, a buy-rate markup or a financed add-on product is folded in — then the APR disclosed under Truth in Lending is higher than the note rate, and the APR is the figure to compare. Always compare offers on APR and on the same term, since a lower APR over a longer term can still cost more in total.
Title, registration and the manufacturer's destination charge are fixed — the state and the factory set them. The documentation fee is capped by statute in some states and entirely unregulated in others, so it is negotiable in practice even where the dealer says it is not. Everything in the add-on family — paint protection, fabric sealant, nitrogen-filled tyres, VIN etching, appearance packages — is optional and high margin, and removing it is the fastest way to cut the amount financed. Extended warranties and GAP cover are worth considering on their merits, but you can buy both elsewhere rather than financing them at your loan's APR.
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Ugo CharlesBuilt and fact-checked against our editorial standards · Last updated June 2026
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