Car Payment Calculator
Calculate car payment easily with our free tool. Get practical results, tips, and comparisons for everyday decisions.
Formula
M = P[r(1+r)^n] / [(1+r)^n - 1]
Where M = monthly payment, P = principal (loan amount after down payment, trade-in, plus tax and fees), r = monthly interest rate (APR / 12), and n = total number of monthly payments. The loan amount equals vehicle price plus sales tax plus fees minus down payment minus trade-in value.
Worked Examples
Example 1: Standard New Car Purchase
Problem: Vehicle price: $35,000. Down payment: $5,000. No trade-in. 60-month loan at 6.5% APR. 7% sales tax. $500 dealer fees.
Solution: Sales Tax: ($35,000 - $0) x 7% = $2,450\nTotal Cost: $35,000 + $2,450 + $500 = $37,950\nLoan Amount: $37,950 - $5,000 - $0 = $32,950\n\nMonthly Rate: 6.5% / 12 = 0.5417%\nMonthly Payment: $32,950 x [0.005417 x (1.005417)^60] / [(1.005417)^60 - 1]\n= $32,950 x 0.01957 = $644.76\n\nTotal Payments: $644.76 x 60 = $38,685.60\nTotal Interest: $38,685.60 - $32,950 = $5,735.60\nTotal All-In Cost: $38,685.60 + $5,000 = $43,685.60
Result: Monthly Payment: $644.76 | Total Interest: $5,735.60 | Total Cost: $43,685.60
Example 2: Used Car with Trade-In
Problem: Vehicle: $22,000. Trade-in: $6,000. Down payment: $2,000. 48-month loan at 5.5%. Tax: 6%. Fees: $300.
Solution: Sales Tax: ($22,000 - $6,000) x 6% = $960\nTotal Cost: $22,000 + $960 + $300 = $23,260\nLoan Amount: $23,260 - $2,000 - $6,000 = $15,260\n\nMonthly Rate: 5.5% / 12 = 0.4583%\nMonthly Payment: $15,260 x [0.004583 x (1.004583)^48] / [(1.004583)^48 - 1]\n= $15,260 x 0.02326 = $355.04\n\nTotal Payments: $355.04 x 48 = $17,041.92\nTotal Interest: $17,041.92 - $15,260 = $1,781.92\nTax savings from trade-in: $6,000 x 6% = $360 saved
Result: Monthly Payment: $355.04 | Total Interest: $1,781.92 | Trade-in tax savings: $360
Frequently Asked Questions
How is a monthly car payment calculated?
Monthly car payments are calculated using the standard amortization formula: M = P[r(1+r)^n] / [(1+r)^n - 1], where M is the monthly payment, P is the principal loan amount, r is the monthly interest rate (annual rate divided by 12), and n is the total number of monthly payments. The principal loan amount is determined by taking the vehicle price, adding sales tax and dealer fees, then subtracting the down payment and trade-in value. For example, a $30,000 loan at 6% APR for 60 months would have a monthly rate of 0.5% and a payment of $30,000 x (0.005 x 1.005^60) / (1.005^60 - 1) = $579.98. Each payment consists of both interest and principal, with early payments being mostly interest and later payments being mostly principal as the balance decreases.
Should I make a larger down payment on a car?
A larger down payment offers several financial advantages. It reduces the amount financed, which directly lowers both your monthly payment and total interest paid. It reduces the risk of being underwater on your loan, where you owe more than the car is worth. Most financial experts recommend putting down at least 20 percent for a new car and 10 percent for a used car. A 20 percent down payment on a $35,000 car ($7,000 down) versus 10 percent ($3,500 down) on a 60-month loan at 6% saves approximately $115 per month and $700 in total interest. Additionally, some lenders offer better interest rates with larger down payments because the loan-to-value ratio is lower, reducing their risk. However, avoid depleting your emergency fund for a larger down payment, as having liquid savings for unexpected expenses is equally important.
How does a trade-in affect car financing?
A trade-in reduces the amount you need to finance, similar to a cash down payment. Most states tax you on the difference between the new car price and the trade-in value, providing additional sales tax savings. For example, if you buy a $35,000 car and trade in your old car worth $8,000, you only pay sales tax on $27,000 instead of $35,000. At a 7% tax rate, that saves $560 in taxes. However, dealers may offer less for your trade-in than you could get through a private sale. Research your car trade-in value on Kelley Blue Book and Edmunds before negotiating. If the dealer offers significantly less, selling privately and using the cash as a down payment may yield better overall results, though you would lose the tax advantage. Some buyers negotiate the trade-in value and new car price separately to avoid confusion and ensure fair pricing on both transactions.
Is it better to buy or lease a car?
The buy-versus-lease decision depends on your priorities, driving habits, and financial situation. Leasing typically offers lower monthly payments (30 to 60 percent lower than buying), allows you to drive a newer car with the latest features every 2 to 3 years, and the car is usually covered by warranty for the entire lease term. However, you own nothing at the end and face mileage restrictions (typically 10,000 to 15,000 miles per year) with penalties of $0.15 to $0.30 per excess mile. Buying costs more monthly but builds equity, has no mileage restrictions, and once the loan is paid off, you have years of payment-free ownership. Over a 10-year period, buying and keeping a car for its full lifespan is almost always cheaper than leasing multiple vehicles. Leasing can make financial sense if you drive low miles, prefer newer vehicles, use the car for business (tax deduction benefits), or want predictable costs.
How do bi-weekly payments save money on a car loan?
Bi-weekly payments involve paying half your monthly payment every two weeks instead of making one full monthly payment. Because there are 52 weeks in a year, this results in 26 half-payments, which equals 13 full monthly payments per year instead of the standard 12. That extra payment goes entirely toward principal, reducing your loan balance faster and decreasing the total interest charged. On a $30,000 loan at 6% for 60 months, bi-weekly payments can save approximately $500 to $700 in interest and pay off the loan 4 to 5 months early. The savings increase with larger loan amounts and higher interest rates. Some lenders offer formal bi-weekly payment programs, but they may charge fees that reduce the benefit. A free alternative is to simply divide your monthly payment by 12 and add that amount to each monthly payment, achieving the same one-extra-payment-per-year effect without needing lender cooperation.
Should I pay off my car loan early?
Paying off a car loan early saves money on interest and frees up cash flow for other financial goals. The savings depend on your interest rate and remaining balance. On a $25,000 loan at 7% with 36 months remaining, paying it off now saves approximately $2,800 in interest. However, there are situations where early payoff may not be the best use of your money. If your auto loan rate is below 4 to 5 percent, investing the extra money in a retirement account or paying down higher-interest debt like credit cards may provide a better financial return. Some loans have prepayment penalties, though these are less common for auto loans than mortgages. Check your loan agreement for any such penalties. If you decide to pay extra, specify that additional payments should go toward principal, as some lenders may apply them to future payments instead. Making even one or two extra payments per year can significantly reduce total interest and shorten the loan term.