What is the Auto Loan Calculator?
The Auto Loan Calculator is designed to assist consumers primarily within the United States during the car purchase process. It can help you estimate monthly car payments, analyze the full cost of a vehicle (including interest, sales taxes, and fees), and view a complete amortization schedule. If you only know the monthly payment you can afford, use the "Find Auto Price" mode (a reverse auto loan calculation) to determine the actual vehicle purchase price you should be targeting.
Dealership Financing vs. Direct Lending
Generally, there are two main financing options available when it comes to auto loans: direct lending and dealership financing.
- Direct Lending: This comes in the form of a typical loan originating from a bank, credit union, or financial institution. Direct lending provides more leverage for buyers to walk into a car dealership with financing fully secured on their terms. This places further stress on the car dealer to compete with a better interest rate. Getting pre-approved doesn't tie car buyers down to any one dealership.
- Dealership Financing: Dealership financing is somewhat similar, except that the auto loan, and thus paperwork, is initiated and completed directly through the dealership instead. These loans are usually serviced by captive lenders associated with the car's manufacturer. It offers great convenience, especially when manufacturers offer promotional interest rates like 0%, 0.9%, or 1.9%.
Trade-in Value and Sales Tax Deductions
A trade-in is the process of selling your current vehicle to the dealership in exchange for credit toward purchasing a new vehicle. In most states that collect sales tax on auto purchases, the sales tax collected is based on the difference between the new car and the trade-in price. For example, for a $50,000 new car purchase with a $10,000 trade-in value, the tax paid on the new purchase (with an 8% tax rate) would be ($50,000 - $10,000) × 8% = $3,200.
However, not all states offer a sales tax reduction for trade-ins. States that do not include California, District of Columbia, Hawaii, Kentucky, Maryland, Michigan, Montana, and Virginia. This calculator automatically adjusts the sales tax method based on the state you select.
Vehicle Rebates and Purchase Fees
Car manufacturers may offer vehicle rebates to further incentivize buyers. Depending on your state, the rebate may or may not be taxed accordingly. Beyond rebates and trade-ins, a car purchase comes with costs other than the purchase price—the majority of which are fees that can normally be rolled into the financing of the auto loan or paid upfront.
- Sales Tax: Most states collect sales tax for auto purchases. Alaska, Delaware, Montana, New Hampshire, and Oregon are the five states that don't charge standard sales tax.
- Document Fees: A fee collected by the dealer for processing documents like title and registration.
- Title and Registration Fees: Fees collected directly by the state for your vehicle's title and registration.
- Destination Fee: A fee that covers the shipment of the vehicle from the manufacturing plant to the dealer's lot, usually between $900 and $1,500.
The Auto Loan Formula
Auto loans follow a standard amortizing loan structure. To calculate the monthly payment manually, you can use the following standard financial formula:
Where:
M = Total monthly payment
P = Principal loan amount (Auto Price - Down Payment - Trade In + Taxes/Fees if rolled in)
r = Monthly interest rate (Annual Interest Rate ÷ 12)
n = Number of months (Loan Term)
Frequently Asked Questions
Including taxes and fees in your loan prevents you from having to pay them out-of-pocket as an upfront cost. However, doing so increases your principal loan amount. This means you will pay interest on those taxes and fees over the life of the loan, ultimately increasing the total cost of your vehicle.
Being "underwater" or "upside down" on an auto loan means that you owe more on the loan than the car is currently worth. This frequently happens because new cars depreciate rapidly as soon as they are driven off the lot. A larger down payment helps prevent you from becoming underwater.
When purchasing a vehicle, manufacturers often offer either a cash rebate or promotional low-interest financing. A cash rebate instantly reduces the purchase price of the car, but a lower rate can potentially result in massive savings in interest payments. The best choice depends on the loan term and the size of the rebate vs. the standard interest rate.
No. While most states deduct the trade-in value from the taxable price of the new vehicle, a few states (like CA, MI, MD, VA, and others) charge sales tax on the full purchase price of the new car before the trade-in value is applied. This calculator accounts for this rule based on your state selection.
Yes. Paying off an auto loan earlier than usual shortens the length of the loan and reduces the amount of interest you pay over time. However, check your loan terms first—some lenders enforce a prepayment penalty that could negate a portion of your interest savings.