Car Loan Calculator

About the Car Loan Calculator

Cars depreciate fastest in their first 1-3 years, but most buyers finance for 5-7 years. That mismatch is why so many car loans end up 'underwater' — the loan balance exceeds the car's value. This calculator handles the loan maths; this page covers down payment, term, and the financial pitfalls of long auto loans.

The Formula

Monthly payment M = P × r × (1+r)^n ÷ ((1+r)^n − 1). For autos: P is car price minus down payment minus trade-in, plus tax/title/registration that gets rolled in. Total cost of ownership also includes insurance, maintenance, and fuel.

Worked Example

$35,000 car, $5,000 down, $30,000 financed at 7.5% for 60 months: M ≈ $601/month, total paid $36,060, interest $6,060. Same car over 72 months: M ≈ $518/month, interest $7,296. Same car at 84 months: M ≈ $462/month, interest $8,808.

The 20/4/10 rule

20% down, no more than 4-year term, total transportation costs (loan + insurance + fuel + maintenance) no more than 10% of gross income. Conservative but keeps you above water on the loan and out of long-term debt. The auto industry pushes 72-84 month loans because they raise the price ceiling buyers think they can afford — they also keep you in debt longer.

Being upside-down (underwater)

A typical new car loses 20% of value in year one and 50-60% in years 2-3. A 72-month loan barely keeps pace. If your loan exceeds the car's value and you have an accident, insurance pays the car's value — leaving you owing the difference. Gap insurance covers this and is worth considering on long-term auto loans.

Cash vs financing

If you can pay cash, the financial calculation depends on the interest rate. At sub-3% promotional rates, financing and investing the cash often wins. At 7-10% market rates, paying cash usually wins unless you have a higher-return use for the capital.

Common Mistakes

• Focusing on the monthly payment instead of total cost. Salespeople will extend the term to fit any budget.
• Rolling negative equity from a previous car into a new loan. You're now 130% financed on a depreciating asset.
• Not getting pre-approved from your bank or credit union before visiting the dealer.
• Adding extras (extended warranty, paint protection, gap insurance) financed at the loan rate.

Frequently Asked Questions

Should I lease or buy?
Lease if you want a new car every 2-3 years and drive predictably (under mileage caps). Buy if you keep cars long-term — owners typically pay less per year of ownership over 10+ years.

Is dealer financing always worse than bank financing?
Not always — promotional rates from manufacturer captive lenders (0-3% APR offers) can beat banks. But always get a competing offer to compare.

This calculator is for informational purposes only and does not constitute financial, tax, or legal advice. Consult a licensed professional before making significant financial decisions.