How the car payment is calculated
First the calculator works out how much you borrow, then it applies the standard loan payment formula.
Amount financed = Price + Sales tax + Fees + Owed on trade-in − Down payment − Trade-in value
Payment = Amount financed × r ÷ (1 − (1 + r)^−n)
where r is the monthly rate (APR ÷ 12) and n is the number of monthly payments. Sales tax is charged on the price minus the trade-in value, which is how most states handle it.
Example
You buy a $35,000 car with $5,000 down, no trade-in, 6% sales tax and $800 in fees, financed at 7% for 60 months.
- Sales tax: $35,000 × 6% = $2,100
- Amount financed: $35,000 + $2,100 + $800 − $5,000 = $32,900
- Monthly payment: $651.46
- Total interest: $6,188, so the payments add up to $39,088
How the term changes the cost
| Term | Monthly payment | Total interest |
|---|---|---|
| 36 months | $1,015.86 | $3,671 |
| 48 months | $787.83 | $4,916 |
| 60 months | $651.46 | $6,188 |
| 72 months | $560.91 | $7,486 |
| 84 months | $496.55 | $8,810 |
Going from 5 to 7 years lowers the payment by about $155 a month but adds about $2,600 of interest. Cars lose value quickly, so a long loan also means you may owe more than the car is worth for years, which hurts if you want to sell or the car is totaled.
Ways to lower your payment
- Put more money down, or wait until you have a larger trade-in.
- Get preapproved by a bank or credit union before visiting the dealer, then ask the dealer to beat that rate.
- Improve your credit score before you apply. The rate difference between excellent and fair credit can be several percentage points.
- Choose a less expensive car. Use the car affordability calculator to find a price that fits.
Frequently asked questions
Is sales tax included in a car loan?
It can be. Most buyers roll sales tax, title and registration into the loan, as this calculator does. If you pay them up front, set the tax rate and fees to 0 and add what you paid to your down payment instead.
Does a trade-in reduce sales tax?
In most states, yes: you pay sales tax only on the price minus your trade-in value. A few states, such as California, tax the full price. Check your state's rules and adjust the tax rate if needed.
What happens if I owe more on my trade-in than it's worth?
That difference, called negative equity, is usually added to your new loan. Enter the trade-in value and the amount you still owe, and the calculator adds the shortfall to the amount financed.
What is a good loan term for a car?
Many experts suggest 48 months or less for a new car, and no more than 60 months. Longer terms lower the payment but raise total interest and the time you owe more than the car is worth.
Last reviewed: 2026-10-31