How to Calculate a Car Payment (Auto Loan Formula)
4 min read
Knowing your monthly car payment before you walk into a dealership puts you in control - you can spot a bad rate, judge whether a longer term is worth it, and stick to a budget.
Here is how to calculate a car payment from the price, your down payment, the rate, and the term.
Step by step
- 1Find the amount you are financing
Subtract your down payment and any trade-in value from the car's price (plus taxes and fees). That remainder is your loan amount.
- 2Get the monthly rate and term
Divide the APR by 12 for the monthly rate, and use the term in months - commonly 36, 48, 60, or 72.
- 3Apply the loan payment formula
Payment = P x r x (1 + r)^n / ((1 + r)^n - 1). A 25,000 loan at 7% APR over 60 months is about 495 per month.
- 4Check the total interest
Multiply the payment by the number of months and subtract the loan amount to see total interest. A longer term lowers the monthly payment but raises this number.
- 5Use the calculator
Enter the price, down payment, rate, and term in the Auto Loan Calculator to see the payment and total cost instantly.
Tips
- A bigger down payment lowers the payment and the interest, and helps you avoid owing more than the car is worth.
- Stretching to 72 or 84 months makes the monthly number look good but you pay far more interest - and risk being underwater.
- Get pre-approved by your own bank first so you can compare it against the dealer's financing offer.
Frequently asked questions
What is the car payment formula?
Payment = P x r x (1 + r)^n / ((1 + r)^n - 1), where P is the amount financed, r is the monthly rate (APR / 12), and n is the number of monthly payments.
Does a longer loan term save money?
No. It lowers the monthly payment but you pay more total interest and stay in debt longer, often owing more than the car is worth.
Should I include taxes and fees?
Yes - if they are rolled into the loan, add them to the amount financed, since you pay interest on them too.