What goes into your car payment
Dealers often quote a monthly payment first, but the total cost matters more. This calculator shows both. The amount financed is the price plus sales tax and any fees, minus your down payment and trade-in. The interest rate and the length of the loan then decide how much extra you pay to borrow.
The formula, and what every variable means
amount financed = price + sales tax + fees − down payment − trade-in
payment = P × r ÷ (1 − (1 + r)−n)
| Symbol | Meaning | How it is found |
|---|---|---|
| Price | Vehicle price before tax and fees | From the window sticker or your negotiated price |
| Sales tax | Tax charged on the purchase | (price − trade-in value) × sales tax rate, the method in many states (confirm yours) |
| Fees | Title, registration and dealer documentation fees you choose to finance | Entered directly |
| P | Principal: the amount you actually borrow | The "amount financed" line above |
| r | Monthly interest rate | APR ÷ 12 ÷ 100 (7% becomes 0.005833) |
| n | Number of monthly payments | The loan term in months |
Worked example 1, by hand: a $35,000 new car
Assume $5,000 down, no trade-in, 6% sales tax, a 7% rate and a 60-month loan.
- Sales tax: $35,000 × 6% = $2,100.00.
- Amount financed: $35,000 + $2,100.00 − $5,000 = $32,100.00.
- Monthly rate: 7 ÷ 100 ÷ 12 = 0.005833.
- Growth factor: (1 + r)60 ≈ 1.4176.
- Payment: $32,100.00 × 0.005833 ÷ (1 − 1 ÷ 1.4176) ≈ $635.62 per month.
- Total of all payments: $635.62 × 60 = $38,137, so interest is $6,037.
Adding the $5,000 down payment, the car really costs $43,137 once the loan is paid off. That is $8,137 more than the sticker price, made up of $2,100 in tax and $6,037 in interest.
Worked example 2: a used car, shorter loan or longer loan?
A $18,000 used car with $2,000 down, 6% sales tax, $600 of fees rolled into the loan and a 9.5% rate. The amount financed is $17,680 either way. Only the term changes.
| 48 months | 72 months | |
|---|---|---|
| Monthly payment | $444.18 | $323.10 |
| Total interest | $3,640 | $5,583 |
| Total paid on the loan | $21,320 | $23,263 |
The 72-month loan lowers the payment by $121 a month, which is tempting, but costs $1,942 more in interest. You would also be making payments for two extra years on a used car that keeps losing value, which raises the risk of owing more than it is worth.
Worked example 3: how a trade-in changes sales tax
A $32,000 car with a $9,000 trade-in (nothing owed on it), $3,000 down, 7% sales tax and a 6.5% rate over 60 months.
| Amount | |
|---|---|
| Taxable amount ($32,000 − $9,000) | $23,000 |
| Sales tax | $1,610.00 |
| Amount financed | $21,610.00 |
| Monthly payment | $422.82 |
| Total interest | $3,759 |
In a state that taxes only the difference, the trade-in saves $630 in sales tax ($2,240.00 on the full price versus $1,610.00). In a state that taxes the full price, you would owe the higher amount. If yours does, raise the tax rate in the calculator until the tax matches your quote. If you owe more on your current car than it is worth, use the negative equity trade-in calculator.
Shorter loans save real money
The box under the results compares your current term with a 48-month loan at the same rate. Stretching a loan to 72 or 84 months usually adds thousands of dollars in interest.
One common rule of thumb, sometimes called the 20/4/10 rule, suggests at least 20% down, a loan of no more than four years, and total car costs under about 10% of your gross income. It is a popular rule of thumb, not an official standard or a law, but it is a useful stress test for any offer you are considering. The $35,000 car in example 1 has 14% down and a five-year term, so it would not meet all three.
Common mistakes to avoid
- Negotiating the monthly payment instead of the price. A low payment can hide a long term or a high rate.
- Ignoring the total cost. Compare total interest, as in example 2.
- Financing extras without noticing. Add-ons rolled into the loan accrue interest for years.
- Skipping pre-approval. Without a competing offer you cannot tell whether the dealer's rate is good.
- Forgetting the running costs. Insurance, fuel and maintenance are not in the payment.
Before you sign
- Get pre-approved by a bank or credit union so you can compare rates against the dealer's offer.
- Negotiate the vehicle price separately from the financing and trade-in.
- Ask whether the loan has a prepayment penalty. Most auto loans do not.
- Remember insurance, fuel and maintenance, which are not part of the payment.
Want to see the loan month by month or test extra payments? Use the loan calculator with amortization schedule.
Sources and review
The payment formula is the standard fixed-rate amortization formula, unit-tested against closed-form results. From the Consumer Financial Protection Bureau: how much you can afford to borrow for a car (price, taxes and fees, add-ons, down payment, trade-in, rate and term), how to compare auto loan offers by APR, rate, term and amount financed, what is in a monthly auto loan payment, the loan-to-value ratio, and trading in a car that is not paid off. The 20/4/10 rule is a popular rule of thumb, not an official standard. Sales tax rules differ by state, so confirm yours with your state revenue department. More in the CFPB's auto loan tools. Last reviewed September 2026. Read about our methodology.