How auto loan payments are calculated
Your monthly payment is determined by three things: the amount financed (vehicle price plus tax, minus down payment and trade-in), the APR, and the loan term in months. The standard amortization formula is:
M = P × [r(1 + r)n] / [(1 + r)n − 1]
Where P is the amount financed, r is the monthly interest rate (APR ÷ 12), and n is the number of monthly payments. Every dollar you borrow costs more when the rate is higher or the term is longer.
$25,000 auto loan payment examples
60-month term, monthly payment and total interest paid over the life of the loan.
| APR | Monthly payment | Total interest |
|---|---|---|
| 5.0% | $471.78 | $3,307 |
| 7.0% | $495.03 | $4,702 |
| 9.0% | $518.96 | $6,138 |
$40,000 auto loan payment examples
60- and 72-month terms compared at three rate levels.
| APR | 60 months: monthly | 60 months: total interest | 72 months: monthly | 72 months: total interest |
|---|---|---|---|---|
| 5.0% | $754.85 | $5,291 | $644.20 | $6,382 |
| 7.0% | $792.05 | $7,523 | $681.96 | $9,101 |
| 9.0% | $830.33 | $9,820 | $721.02 | $11,914 |
Stretching from 60 to 72 months drops the monthly payment by about $110 — but it costs roughly $1,100–$2,100 more in total interest, and increases the risk of being "underwater" (owing more than the car is worth) since cars depreciate faster than long-term loans amortize.
How a down payment affects total interest
$40,000 vehicle, 7% APR, 60-month term, no trade-in or sales tax:
| Down payment | Amount financed | Monthly payment | Total interest |
|---|---|---|---|
| $0 (0%) | $40,000 | $792.05 | $7,523 |
| $4,000 (10%) | $36,000 | $712.84 | $6,771 |
| $8,000 (20%) | $32,000 | $633.64 | $6,018 |
A 20% down payment on a $40,000 vehicle saves about $1,500 in interest and cuts the monthly payment by $158 versus financing the full price. Down payments also lower the chance of owing more than the car is worth in the early years of the loan.
APR, term, down payment, trade-in, and fees
- APR (Annual Percentage Rate): the interest rate plus any fees rolled into the loan, expressed as a yearly rate. Always compare APR — not just the quoted interest rate — when shopping lenders.
- Term: the number of months over which the loan is repaid. Shorter terms mean higher monthly payments but significantly less total interest.
- Down payment: cash you pay upfront. Reduces the amount financed dollar-for-dollar.
- Trade-in: the credit your dealer gives you for your current vehicle. Lowers the amount financed like a down payment. If you still owe money on the trade-in (negative equity), the remaining balance is often rolled into the new loan, increasing the amount financed.
- Sales tax and fees: sales tax, registration, title, dealer documentation, and add-on products (GAP insurance, extended warranties) can be paid out of pocket or rolled into the loan. Rolling them in increases the amount financed and total interest.
About the sales-tax estimate
This calculator uses a simplified sales tax estimate based on the values entered. Actual tax treatment, trade-in credits, registration fees, title fees, dealer fees, rebates, and incentives vary by state and dealer. For an exact figure, get a written out-the-door quote from the dealer or check your state DMV's fee schedule.
True cost of ownership vs. loan cost
This calculator shows the financial cost of the loan itself. The full cost of owning a car also includes insurance, fuel, maintenance, registration, and depreciation. A car that costs $500/month in payments might cost $900/month all-in — worth budgeting for before signing.
Frequently asked questions
How much is a car payment on $25,000?
At 7% APR over 60 months, a $25,000 auto loan is about $495/month, with $4,702 in total interest. Higher APRs or longer terms raise both numbers — see the example tables above for a side-by-side comparison.
How much is a car payment on $40,000?
At 7% APR over 60 months, a $40,000 auto loan is about $792/month, with $7,523 in total interest. Stretching to 72 months drops the monthly payment to about $682, but adds roughly $1,600 in interest over the life of the loan.
Should I put more money down?
Generally yes — a larger down payment means a smaller loan, less interest paid, and a lower risk of going underwater. A common guideline is 10–20% down on a new car and at least 10% on used. If you have a high-rate loan, putting more down upfront is one of the best available "investments."
What's the difference between APR and interest rate?
For auto loans, APR includes both the interest rate and any fees rolled into the loan. It's the more complete cost measure. Always compare APRs, not just the quoted interest rate, when shopping between lenders.
Frequently Asked Questions
What is a good interest rate for a car loan?
Bankrate's weekly survey of large banks put the average 60-month new-car rate at 7.00% on September 23, 2026. Used-car loans usually cost more, and rates vary widely by credit score and lender, so compare a credit union or bank offer with the dealer's.
Should I make a larger down payment on a car?
A larger down payment reduces your monthly payment, total interest paid, and the risk of going underwater on the loan (owing more than the car is worth). Putting down 10–20% is generally recommended.
What loan term should I choose for a car?
Shorter terms (36–48 months) cost less in total interest but have higher monthly payments. Longer terms (60–72 months) lower monthly payments but cost significantly more over time. A common guideline is to keep auto loans to 60 months or less.
Is car loan interest tax deductible?
For 2025 through 2028, yes, for some loans. You can deduct up to $10,000 a year of interest on a loan taken out after December 31, 2024 to buy a new vehicle for personal use, if its final assembly was in the United States and it weighs under 14,000 pounds. You do not need to itemize to claim it, but you must report the vehicle identification number. The deduction phases out above $100,000 of modified adjusted gross income, or $200,000 on a joint return. Used cars, leases, and business vehicles do not qualify.