Auto Loan Calculator

An auto loan is a fully amortizing closed-end installment contract, but the number that actually gets financed is rarely the sticker price. The amount financed here is the vehicle price plus sales tax, less the cash down payment and the trade-in allowance. That distinction matters because most states tax the vehicle, and rolling several thousand dollars of tax into the note means paying interest on a tax bill for five or six years. Roughly forty states grant a trade-in tax credit, assessing sales tax only on the difference between the new vehicle price and the trade allowance; California taxes the full purchase price regardless, and Michigan allows only a capped credit. Once the principal is set, each monthly payment splits between interest accrued on the outstanding balance and principal reduction, so early payments are interest-heavy. The practical risk is negative equity. New vehicles commonly lose about 20 percent of their value in the first year, while a 72-month loan retires principal slowly, so a buyer with less than 20 percent down can owe more than the car is worth for two or three years. Lenders track this as the loan-to-value ratio and price rates higher above 100 percent LTV. This model also excludes dealer documentation fees, extended warranties, registration, and any negative equity rolled forward from a prior loan, all of which enlarge the real principal.

Cars were originally a cash purchase. That changed in 1919, when General Motors created the General Motors Acceptance Corporation to lend to dealers and retail buyers, making the installment-financed automobile a mass product. Ford resisted consumer credit and countered in 1923 with the Weekly Purchase Plan, a layaway scheme in which buyers saved toward a car before taking delivery; it failed against the immediate delivery GMAC offered, and Ford launched its own credit arm in 1928. Commercial banks entered auto lending heavily in the 1930s, and captive finance companies from Chrysler, Toyota and others followed the GMAC template. Two later changes shaped the modern contract. The Truth in Lending Act of 1968 and its Regulation Z forced lenders to disclose a standardized annual percentage rate and total finance charge, which made cross-lender comparison possible for the first time. State legislatures then began granting sales tax credit on trade-ins to avoid taxing the same vehicle twice, which is why the taxable base in this calculation depends on where the sale happens. Loan terms have stretched steadily: 36 months was standard in the 1970s, 60 months became normal by the 1990s, and Federal Reserve and industry data show average new-car terms near 69 months in recent years, with 84-month contracts now routinely offered.