How it works
The amount you finance is not just the sticker price. Sales tax and dealer fees are usually added, while your down payment and trade-in value are taken off. The monthly payment is then the standard loan instalment on that amount.
amount financed = price + sales tax + fees − down payment − trade-in payment = A × r ÷ (1 − (1 + r)−n) · r = APR ÷ 12, n = monthsWorked example. A $30,000 car with $3,000 down and a $5,000 trade-in. Sales tax of 6% is charged on 30,000 − 5,000 = $25,000, so it is $1,500. Adding $500 of fees, the amount financed is 30,000 + 1,500 + 500 − 3,000 − 5,000 = $24,000. At 7% APR for 60 months the payment is $475.23 a month, and the total interest is about $4,514.
Things that change the number
- Trade-in and tax: most US states tax only the price minus the trade-in, as this calculator assumes; a few, such as California, tax the full price. Enter the tax that applies to you.
- Term length: 72- and 84-month loans lower the payment but add interest and can leave you owing more than the car is worth for years.
- Rate: your credit score affects the APR far more than the car does; get a pre-approval before visiting the dealer.
- Flat-rate offers: some dealers in the Gulf quote a “flat” rate charged on the original amount for the whole term. That costs much more than the same rate on a reducing balance — ask for the APR to compare.
A simple affordability check
A common guideline is to put at least 20% down, finance for no more than 4–5 years, and keep total car costs (payment, insurance, fuel) under about 10–15% of take-home pay. It is a rule of thumb, not a requirement.
Planning fuel costs too? Use the fuel cost calculator. For a home, try the mortgage calculator; for a full repayment schedule, the loan calculator.