Understanding Your Auto Loan
Financing a vehicle is a common way to purchase a car, but it's important to understand the costs involved. Our Auto Loan Calculator helps you estimate your monthly car payment and see the total amount of interest you will pay over the loan's term. By experimenting with different vehicle prices, down payments, interest rates, and loan terms, you can find a financing option that fits your budget.
How Your Car Payment is Calculated
The calculator uses a standard formula to determine the monthly payment for an amortizing loan. This ensures that by the end of your loan term, you will have paid off the entire loan balance plus interest.
The Monthly Payment (M) Formula
M = P[r(1+r)^n] / [(1+r)^n - 1]Here’s what each part of the formula means:
- P is the Principal Loan Amount. This is the vehicle's price minus your down payment and the value of any trade-in.
- r is the monthly interest rate. This is your Annual Percentage Rate (APR) divided by 12.
- n is the number of payments. This is the loan term in years multiplied by 12.
The total cost of the loan is the sum of all monthly payments, and the total interest is this total cost minus the original principal amount.
Practical Example
Let’s say you want to buy a car that costs $25,000. You have a $5,000 down payment and a trade-in worth $2,000. You secure a loan for 60 months (5 years) at an APR of 7%.
- Vehicle Price: $25,000
- Down Payment & Trade-in: $5,000 + $2,000 = $7,000
- Principal Loan Amount (P): $25,000 - $7,000 = $18,000
- Monthly Rate (r): 0.07 / 12 = 0.005833
- Payments (n): 60
Using these numbers, the calculator will determine:
- Estimated Monthly Payment: $356.41
- Total Interest Paid: ($356.41 × 60) - $18,000 = $3,384.60
This shows that financing $18,000 under these terms will cost you an additional $3,384.60 in interest over the five years.