Car Loan Calculator

How Car Loans Work

A car loan is a secured installment loan where the vehicle itself serves as collateral. When you finance a car, the lender pays the dealer on your behalf and you repay the lender in fixed monthly installments over a set term, typically ranging from 36 to 84 months. Each payment covers a portion of the principal (the amount you borrowed) plus interest (the cost of borrowing). Early in the loan, a larger share of each payment goes toward interest, but as the balance decreases, more of each payment is applied to principal. This gradual shift is shown in the amortization schedule above.

The interest rate you receive depends on several factors: your credit score, the loan term, whether the car is new or used, the lender you choose, and current market conditions. Dealerships often mark up the rate they receive from lenders, so it is wise to secure pre-approval from a bank or credit union before visiting the lot. Pre-approval gives you a benchmark rate and strengthens your negotiating position.

New vs. Used Car Loan Rates

Interest rates on new car loans are almost always lower than rates on used car loans. Lenders view new vehicles as less risky because they come with manufacturer warranties, have a known history, and depreciate more predictably. Used cars, on the other hand, carry more uncertainty about their condition and remaining useful life, so lenders charge a premium to offset that risk. The difference is typically 1 to 3 percentage points, though it can be larger for older or high-mileage vehicles.

Manufacturers frequently offer promotional financing on new models -- sometimes as low as 0% APR for qualified buyers. These offers can save thousands of dollars in interest, but they often come with shorter loan terms and require excellent credit. Always compare the total cost of a low-rate manufacturer deal against a cash rebate alternative, because the rebate combined with a standard loan rate can sometimes be cheaper overall.

How Loan Term Affects Total Cost

Choosing a longer loan term reduces your monthly payment but increases the total interest you pay over the life of the loan. A 72-month loan on $25,000 at 6% APR results in a monthly payment of about $414 but costs roughly $4,800 in total interest. The same loan at 48 months would cost $587 per month but only $3,150 in total interest -- a savings of more than $1,650. Longer terms also increase the risk of being "upside down," meaning you owe more than the car is worth, which can be a serious problem if you need to sell or trade in the vehicle early.

Beyond the loan itself, remember to factor in the total cost of ownership: insurance premiums, fuel, maintenance, registration fees, and depreciation. A car that costs $30,000 to purchase may cost $45,000 or more over five years when all ownership expenses are included. Use this calculator to find a monthly payment that fits your budget while keeping the loan term as short as possible.

Average Auto Loan Rates by Credit Score

Your credit score is the single biggest factor in determining your interest rate. The table below shows approximate average APRs for new and used car loans based on credit score ranges. Improving your score before applying can save you thousands of dollars over the life of the loan.

Rates are approximate averages and vary by lender, loan term, and market conditions. Data reflects typical 2024-2025 auto lending trends.

Tips for Getting the Best Auto Loan Rate

Down Payment Strategies and Financial Impact

The size of your down payment is one of the most powerful levers you control when financing a car. A larger down payment reduces your monthly obligation, lowers total interest paid, and helps you avoid negative equity. Financial experts recommend putting down at least 20% on a new vehicle and 10% on a used one, but many buyers put down far less -- or nothing at all. While zero-down financing is widely advertised, it comes with significant risks and costs that most buyers underestimate.

Consider a $30,000 new car financed at 6% APR for 60 months. With a 20% down payment ($6,000), you finance $24,000 and pay $464 per month with $3,827 in total interest. With zero down, you finance the full $30,000, pay $580 per month, and pay $4,784 in total interest -- nearly $1,000 more over the loan term. Beyond the dollar savings, the 20% down scenario keeps you above water from day one, while the zero-down buyer is immediately underwater because new cars depreciate 20-30% in the first year alone.

If you cannot afford the recommended down payment, consider buying a less expensive vehicle or continuing to save. Rolling negative equity from a trade-in into a new loan is particularly dangerous, as it compounds the problem and can trap you in a cycle of perpetual underwater loans. Some lenders will not approve loans above 125% loan-to-value, and those that do charge much higher rates.

Loan Term Comparison: 36 vs 48 vs 60 vs 72 Months

Loan term is the second-most important factor after interest rate. The average auto loan term has grown from 60 months a decade ago to 68 months today, and loans of 72 or 84 months are increasingly common. While these extended terms make expensive vehicles seem affordable on a monthly basis, they are costly traps that maximize dealer profit and lender interest income at your expense. Understanding the true cost difference between loan terms is essential to making a sound financial decision.

Notice that moving from 72 months to 48 months increases the monthly payment by $173, but saves $1,688 in interest -- equivalent to nearly 10 months of the extra payment. If you can afford the higher payment, the 48-month term is clearly superior. The 36-month option saves even more but requires a substantially higher monthly commitment that many budgets cannot accommodate.

Another critical consideration is equity. With a 72-month loan, you are underwater for the first three to four years, meaning you owe more than the car is worth. If you need to sell or trade the vehicle during this period, you will have to write a check to cover the gap between the loan balance and the car's value. Shorter loans build equity faster and give you more flexibility to exit the loan early if your circumstances change.

Total Cost of Ownership Beyond the Loan

Your monthly loan payment is only one component of car ownership costs. Insurance, fuel, maintenance, registration fees, and depreciation can easily double or triple the effective cost of owning a vehicle over five years. Understanding the full picture before you commit to a loan helps you avoid buyer's remorse and financial strain.

This example assumes average costs and does not include depreciation, which is a real economic loss even if you keep the car. After five years, the $30,000 vehicle is likely worth $12,000-$15,000, meaning the true cost of ownership is closer to $70,000 when you account for lost equity. For this reason, financial advisors often recommend following the 20/4/10 rule: put down at least 20%, finance for no more than four years, and keep total transportation expenses (loan payment, insurance, fuel, maintenance) below 10% of your gross income.

Insurance is particularly important to budget accurately. Rates vary widely based on your age, location, driving history, and the vehicle model. Sports cars, luxury brands, and vehicles with high theft rates cost significantly more to insure. Get insurance quotes on any car you are seriously considering before you commit to the purchase, and factor that monthly cost into your affordability calculation.

Dealer Financing vs Bank Financing vs Credit Union

Where you get your auto loan matters as much as the terms themselves. Dealerships, banks, and credit unions all offer car loans, but their incentives, rates, and customer service vary dramatically. Understanding the pros and cons of each lending source helps you secure the best deal and avoid common financing traps.

Dealer Financing

Dealerships do not lend their own money. Instead, they act as intermediaries, submitting your application to multiple lenders and receiving rate quotes. The dealer then marks up the rate they were offered and presents that higher rate to you, pocketing the difference as profit. This markup can range from 0.5% to 3% or more. For example, if the lender approves you at 5% APR, the dealer might offer you 6.5% and keep the spread. This practice is legal and widely used, which is why pre-approval from a bank or credit union is so valuable -- it gives you a baseline rate the dealer must beat.

Dealer financing is convenient, especially if the manufacturer is offering promotional rates (0% APR or low-rate financing on select models). These special rates are typically only available through the dealer's captive finance arm (e.g., Ford Credit, Toyota Financial Services) and can be excellent deals for qualified buyers. However, dealers also employ high-pressure tactics, focusing on monthly payment rather than total cost, and often bundle in expensive add-ons like extended warranties, GAP insurance, and paint protection during the finance process.

Bank Financing

Your bank or an online lender offers straightforward auto loans with transparent rates. Large national banks (Chase, Bank of America, Wells Fargo) have competitive rates for well-qualified borrowers and quick online pre-approval processes. The main advantages are transparency and simplicity: you know your rate before shopping, you can complete most of the paperwork online, and there is no haggling or upselling at the dealership. Rates typically range from 4% to 8% for prime borrowers.

Online lenders such as LightStream, Capital One Auto Navigator, and Consumers Credit Union often beat traditional banks by 0.5% to 1% because they have lower overhead. Many also offer pre-qualification with a soft credit pull, so you can compare rates without affecting your credit score. The downside is that you will need to coordinate payment with the dealer, which adds a small administrative step on purchase day.

Credit Union Financing

Credit unions are member-owned, nonprofit financial institutions that often offer the lowest auto loan rates available -- sometimes 1% to 2% below comparable bank rates. They are particularly generous with borrowers who have fair or good credit, making them an excellent option if you do not qualify for top-tier rates elsewhere. Many credit unions also have more flexible underwriting and are willing to work with you if your credit is less than perfect.

The catch is that you must be a member to borrow, but membership requirements are usually easy to meet (living in a certain area, working for a qualifying employer, or joining an affiliated organization). Some large credit unions, such as Navy Federal and PenFed, accept members nationwide. Service is often more personalized than at big banks, and credit unions are less likely to sell your loan to another servicer.

How to Negotiate Car Prices and Financing

Car buying is one of the few retail transactions where the price is fully negotiable, yet many buyers accept the first offer or focus only on monthly payment. Dealers rely on confusion and information asymmetry to maximize profit. A well-informed buyer who negotiates strategically can save thousands of dollars on both the vehicle price and financing terms.

Step 1: Research Market Value

Before setting foot in a dealership, research the fair market value of the car you want using resources like Kelley Blue Book (KBB), Edmunds, or TrueCar. These sites provide average transaction prices, which represent what buyers in your area are actually paying -- not the inflated MSRP. Armed with this information, you can anchor your negotiation around a realistic target price. For new cars, a reasonable goal is 3-5% below MSRP on mass-market vehicles, or closer to invoice price on high-demand models.

Step 2: Negotiate the Vehicle Price First

Never discuss monthly payment, trade-in value, or financing until you have agreed on the out-the-door price of the vehicle. Dealers use a tactic called the four-square method, juggling vehicle price, trade-in value, down payment, and monthly payment simultaneously to obscure how much you are actually paying. Insist on negotiating the vehicle price as a standalone number. Once you have a firm price, then discuss your trade-in separately, and finally, review financing options.

Step 3: Negotiate Your Trade-In Separately

Get a trade-in appraisal from a third party (CarMax, Carvana, or a competing dealership) before negotiating your trade. These no-obligation offers give you a firm baseline and often exceed what the dealer initially offers. Do not reveal your third-party offer until after the dealer makes their first offer. If they lowball you, show them the competing offer and ask them to match or beat it.

Step 4: Secure Your Own Financing

Arrive at the dealership with pre-approved financing from your bank or credit union. This eliminates the dealer's ability to mark up your interest rate and shifts the negotiation in your favor. If the dealer offers manufacturer-subsidized financing (e.g., 0% APR or a special rate), compare the total cost against your pre-approved loan plus any available cash rebate. Sometimes taking the rebate and using your own financing is cheaper.

Step 5: Review the Finance Office Carefully

The finance manager's job is to sell you additional products: extended warranties, GAP insurance, paint protection, theft deterrents, and prepaid maintenance plans. Some are worthwhile, many are overpriced, and a few are outright scams. Decline everything initially, then research any product that sounds useful. You can almost always buy these products later, often from third parties at lower cost. Never let the finance manager rush you, and read every document before signing.

Common Car Buying Mistakes to Avoid

Car buying is fraught with pitfalls, and even financially savvy buyers can fall victim to common mistakes. Being aware of these errors helps you navigate the process with confidence and avoid costly regrets.

Understanding How Credit Score Impacts Your Rate

Your credit score is the most important factor in determining your interest rate, and even small improvements can yield substantial savings. Lenders use your FICO Auto Score (a version of the FICO score specifically calibrated for auto loans) to assess your credit risk. This score ranges from 250 to 900, with most lenders categorizing borrowers into five tiers: super prime (781+), prime (661-780), near prime (601-660), subprime (501-600), and deep subprime (below 500).

The difference in rates between tiers is significant. According to recent Experian data, the average APR for a new car loan is 5.6% for super prime borrowers but 15.7% for deep subprime borrowers. On a $25,000 loan over 60 months, that difference translates to $230 per month versus $597 per month -- more than $22,000 extra over the life of the loan. Even within the same tier, a 20-point score increase can drop your rate by 0.25% to 0.5%, saving hundreds of dollars.

If your score is below 660, consider taking three to six months to improve it before applying. The savings from a better rate will far exceed the inconvenience of waiting. Additionally, many lenders offer rate discounts (typically 0.25%) if you set up automatic payments from a checking account, further reducing your cost.

Leasing vs Buying: Which Makes Financial Sense?

Leasing and buying are fundamentally different transactions, each with distinct advantages and drawbacks. Leasing is essentially a long-term rental: you pay for the vehicle's depreciation during the lease term (typically 24 to 36 months) plus interest and fees, then return the car. Buying means you finance the full purchase price and own the vehicle outright once the loan is paid off. For most buyers, purchasing is the better financial decision over the long term, but leasing can make sense in specific circumstances.

Advantages of Buying

Buying builds equity. Once your loan is paid off, you own an asset that retains significant value and can be sold or traded. Even a five-year-old car is typically worth $8,000 to $15,000, which can serve as a down payment on your next vehicle or eliminate the need for a loan altogether. Ownership also gives you unlimited mileage, the freedom to modify the vehicle, and no penalties if you decide to sell early. For buyers who keep cars for more than five years, purchasing is almost always cheaper in the long run.

Advantages of Leasing

Leasing offers lower monthly payments (often 30-50% less than a purchase loan), allows you to drive a new car every few years, and typically includes warranty coverage for the entire lease term, minimizing maintenance costs. It is appealing for drivers who want the latest technology and safety features, drive fewer than 12,000 miles per year, and prefer predictable expenses. Business owners can sometimes deduct lease payments, making leasing more tax-efficient in certain cases.

The Hidden Costs of Leasing

Leasing only appears cheaper because you are not paying for the entire car -- you are paying for the depreciation, which front-loads the cost of ownership. At the end of the lease, you have no equity and must start over with another down payment and monthly obligation. If you continually lease, you are perpetually making payments with nothing to show for it. Leases also impose strict mileage limits (usually 10,000-12,000 miles per year) with penalties of $0.15 to $0.30 per excess mile. Wear-and-tear charges can add hundreds or thousands of dollars at lease end, and early termination is prohibitively expensive.

Over 10 years, the buyer spends about $26,000 net (after accounting for the car's residual value), while the continuous leaseholder spends $54,000 and owns nothing. The math strongly favors buying if you can afford the slightly higher monthly payment and plan to keep the vehicle beyond the loan term.

Additional Costs: Insurance, Registration, and Maintenance

Car ownership involves recurring expenses beyond the loan payment that collectively represent a substantial portion of your total cost. Budgeting for these expenses before you commit to a vehicle purchase is essential to avoid financial stress and ensure you can comfortably afford the car over its entire ownership period.

Insurance Costs

Auto insurance is the single largest recurring expense after your loan payment. The national average is approximately $1,500 per year for full coverage, but rates vary dramatically based on your age, location, driving record, credit score, and the vehicle itself. Young drivers under 25 can expect to pay $2,500 to $5,000 annually, while middle-aged drivers with clean records in low-cost states may pay under $1,000. High-performance vehicles, luxury cars, and models with high theft rates cost significantly more to insure -- sometimes double or triple the rate of comparable sedans.

When you finance a vehicle, the lender requires comprehensive and collision coverage until the loan is paid off. This full coverage is substantially more expensive than the liability-only coverage required by law. Always get insurance quotes on any car you are considering before finalizing the purchase. If the insurance premium is unaffordable, choose a different model. Popular targets for theft (Honda Civics, Toyota Camrys) and vehicles with poor safety ratings will cost more to insure.

Registration, Taxes, and Fees

Most states charge annual registration fees based on the vehicle's value, age, weight, or a flat rate. These fees typically range from $50 to $500 per year and must be paid to keep the vehicle legally on the road. Some states also impose personal property taxes on vehicles, which can add hundreds or even thousands of dollars annually in high-tax jurisdictions. Include these costs in your budget, as they are non-negotiable and recur every year you own the car.

Maintenance and Repairs

Routine maintenance (oil changes, tire rotations, brake pads, filters) costs $500 to $1,000 per year for most vehicles. As the car ages, expect additional expenses for larger repairs: tires ($600-$1,200 per set), battery ($150-$300), alternator ($500-$1,000), and transmission service ($200-$500). Luxury and European vehicles have significantly higher maintenance costs due to expensive parts and specialized labor. A BMW or Mercedes can easily cost $2,000 per year to maintain, compared to $700 for a Honda or Toyota.

New cars typically include a three-year/36,000-mile bumper-to-bumper warranty, which covers most repairs during that period. However, once the warranty expires, you are responsible for all repair costs. Setting aside $100 per month in a dedicated maintenance fund ensures you are prepared for inevitable expenses and are not caught off guard by a $1,500 repair bill.

When to Refinance an Auto Loan

Refinancing your auto loan -- replacing your existing loan with a new one at a lower interest rate or different term -- can save you money or reduce your monthly payment. Refinancing makes sense when interest rates have dropped, your credit score has improved significantly since you took out the original loan, or you need to lower your monthly payment due to changed financial circumstances.

When Refinancing Makes Sense

Consider refinancing if you can reduce your interest rate by at least 1% without extending your loan term. For example, if you originally financed $25,000 at 8% APR and can now refinance at 6% for the remaining term, you could save $1,000 or more in interest. Similarly, if your credit score has improved by 50+ points since your original loan, you may now qualify for a much better rate. Many borrowers who buy cars with subprime credit scores can refinance within 12-18 months after improving their credit.

Refinancing can also help if you are struggling with your current payment. Extending the loan term reduces the monthly amount due, though it increases total interest paid. This is not ideal, but it is better than defaulting or letting the car be repossessed. Conversely, if your income has increased and you want to pay off the loan faster, you can refinance to a shorter term with a lower rate.

When Refinancing Is Not Worth It

Do not refinance if you are near the end of your loan term (less than 12 months remaining), as the savings will not outweigh the time and cost of refinancing. Also avoid refinancing if your car is very old or has high mileage, as many lenders will not refinance vehicles older than 10 years or with more than 100,000 miles. Finally, check for prepayment penalties on your existing loan -- some lenders charge fees if you pay off the loan early, which can negate your savings.

Refinancing costs are typically minimal (often no upfront fees), but you should still shop around to compare offers from at least three lenders. Credit unions, online lenders, and even your current bank may offer refinancing. The process takes a few days to a few weeks, and you will need to provide proof of income, the vehicle's title, and information about your current loan.

GAP Insurance and Extended Warranties

Dealerships aggressively sell GAP insurance and extended warranties in the finance office, often bundling them into your loan so you do not see the full cost. While both products can provide value in certain situations, they are often overpriced and unnecessary. Understanding what these products actually cover -- and what they cost elsewhere -- helps you make an informed decision.

GAP Insurance Explained

GAP (Guaranteed Asset Protection) insurance covers the difference between what you owe on your loan and what the car is worth if it is totaled or stolen. This gap exists because new cars depreciate rapidly -- often losing 20-30% of their value in the first year -- while your loan balance decreases slowly. If you total a $30,000 car after one year and it is now worth $22,000, but you still owe $27,000, GAP insurance pays the $5,000 difference so you are not stuck repaying a loan on a car you no longer have.

GAP insurance makes sense if you put little or no money down, finance for more than 60 months, or buy a vehicle that depreciates quickly. However, dealerships charge $500 to $1,000 for GAP coverage, while your auto insurance company or a standalone provider often offers the same coverage for $20-$40 per year added to your policy. Always check with your insurer first before buying GAP from the dealer. If you do buy it from the dealer, ensure it is cancellable with a prorated refund if you pay off the loan early or sell the car.

Extended Warranties (Vehicle Service Contracts)

Extended warranties are not warranties at all -- they are service contracts that cover certain repairs after the factory warranty expires. Dealers sell these contracts at enormous markups, often $2,000 to $4,000, and the coverage is riddled with exclusions, deductibles, and limitations. Many extended warranties cover only powertrain components (engine, transmission), exclude wear items (brakes, tires), and require you to follow a strict maintenance schedule at approved facilities or risk voiding the contract.

For most buyers, extended warranties are a poor value. Modern cars are highly reliable, and the cost of the warranty often exceeds the cost of repairs you are likely to need. If you are buying a used luxury or European car with a history of expensive repairs, an extended warranty might make sense -- but buy it from a third-party provider (Endurance, CarShield, CARCHEX) at half the dealer's price, or better yet, self-insure by setting aside the money you would have spent on the warranty in a dedicated savings account.

Frequently Asked Questions