How it works
An auto loan is an ordinary amortising loan wearing a car's name, and the engine prices it exactly that way. Principal is the out-the-door price minus the down payment and trade-in, the payment is fixed for the term, and interest is front-loaded, so early payments are mostly interest and late payments are almost entirely principal. On the defaults — a $32,000 vehicle, $6,000 down, 6.9% over 5 years — the loan is $26,000 and the payment is $513.61 a month. Month one splits $149.50 to interest and $364.11 to principal, so 29% of the first payment is rent on the money. By month twelve the balance has fallen to $21,489.87, and that first year consumed $1,653.14 of interest against $4,510.13 of principal. Across the full sixty months the loan costs $4,816.32 in interest and $30,816.32 in total. The term is the lever that matters, and the engine makes the trade visible. Shorten to 48 months and the payment rises to $621.40 while total interest falls to $3,827.05 — $107.79 a month buys back $989.27. Stretch to 84 months and the payment drops to a comfortable $391.14, but interest climbs to $6,855.75: a $2,039.43 penalty for $122.47 of monthly relief. That single comparison is the strongest argument against long terms, and it is why a low-rate incentive is the only good reason to take one. The extra payment field is where the labelling trips people up. Adding $100 a month clears the loan in 49 months instead of 60 and saves $931.51 of interest, and the amortisation schedule correctly shows $613.61 leaving your account each month. But the headline "Monthly payment" output still reads $513.61, because that figure is the scheduled payment alone — the extra is not folded into it. If you set an extra payment, budget from the schedule, not from the primary output. There is also no tax or fee field. The price input is labelled out-the-door, which means you fold sales tax, title, registration and documentation fees into it yourself: on a $32,000 purchase a 6% sales tax alone is $1,920, and dealer documentation fees commonly add several hundred more. Enter the sticker price instead and every figure the calculator returns — payment, interest, total cost — is understated. The output that decides whether you are trapped is not on the page, so compute it yourself: the loan balance against what the car is worth. Take the same $32,000 car with nothing down over 84 months and the payment is a tempting $481.40, but the balance after twelve months is still $28,316.11. A new car that sheds 20% of its value in year one is worth roughly $25,600, which leaves you about $2,716 underwater — you would have to write a cheque to sell it. Put the default $6,000 down on the same 84-month loan and the twelve-month balance falls to $23,006.84, roughly $2,593 of equity instead. The down payment is not really about the monthly figure; it is about never owing more than the car is worth. Before accepting any rate, check it against the market. The Federal Reserve's G.19 release puts the average bank rate on a 60-month new-car loan at 7.14% in Q2 2026 and the 72-month rate at 6.97% — the longer term is currently the cheaper one at banks, inverting the usual term premium. Finance-company loans, the captive lenders behind most manufacturer incentives, averaged 6.3% over 67 months on $41,705 financed. Against those benchmarks the default 6.9% is a fair working assumption, and a quote materially above 7.14% on a 60-month term is worth taking to a second lender.
Formula
Principal = vehicle price - down payment - trade-in
Payment = P x r(1+r)^n / ((1+r)^n - 1), where r = APR/12/100 and n = term in months
Worked example - the defaults: $32,000 price, $6,000 down, 6.9% APR, 60 months
Principal = 32,000 - 6,000 = $26,000.00
Monthly payment = $513.61
Month 1 split = $149.50 interest + $364.11 principal
Balance after 12 months = $21,489.87
Year 1 interest / principal = $1,653.14 / $4,510.13
Total interest over 60 months = $4,816.32
Total cost of the loan = $30,816.32
The term trade, same $26,000 principal at 6.9%
48 months payment $621.40 total interest $3,827.05 total cost $29,827.05
60 months payment $513.61 total interest $4,816.32 total cost $30,816.32
84 months payment $391.14 total interest $6,855.75 total cost $32,855.75
60 -> 84 saves $122.47/month and costs $2,039.43 more interest.
60 -> 48 costs $107.79/month and saves $989.27 of interest.
Extra $100 per month on the 60-month default
Payoff falls from 60 to 49 months; interest falls to $3,884.81
Saved = $931.51 over 11 fewer months. Schedule rows show $613.61,
but the "Monthly payment" output still reports $513.61.
Negative equity check - same $32,000 car, 84 months, no down payment
Payment $481.40 Balance after 12 months = $28,316.11
Car worth ~20% less = $25,600 -> underwater by ~$2,716.11
With the $6,000 down payment the 12-month balance is $23,006.84,
i.e. about $2,593 of equity instead of a $2,716 shortfall.
Benchmarks - Federal Reserve G.19, Q2 2026
60-month new-car bank loan 7.14%
72-month new-car bank loan 6.97% (the longer term is currently cheaper)
Finance-company new-car loan 6.3%, average 67 months, $41,705 financed
Zero-percent check - $32,000 with no down payment at 0% for 60 months
Payment $533.33 Total interest $0.00 Total cost $32,000.00
Tips
- Fold tax, title and fees into the price before you start. The model has no fee field, so a 6% sales tax on a $32,000 car ($1,920) plus documentation fees has to go into the price input or the payment, interest and total cost all come out low.
- Take the longest term only when the rate is genuinely near zero. At 0% for 60 months a $32,000 car costs $533.33 a month and $0 of interest, so stretching the term is free. At 6.9%, going from 60 to 84 months buys $122.47 a month for $2,039.43 of extra interest — an expensive trade.
- Pay extra rather than shortening the contract. $100 a month clears the default loan 11 months early and saves $931.51, with no penalty and no renegotiation. Auto loans are simple-interest, so every extra dollar of principal stops earning interest immediately.
- Budget from the amortisation schedule, not the headline figure, whenever you set an extra payment. The "Monthly payment" output shows only the scheduled payment — $513.61 on the defaults — while the rows you will actually pay read $613.61.
- Arrange financing before you walk into the dealership. Floor financing is priced to profit the dealer, and the G.19 benchmark of 7.14% for a 60-month bank loan gives you a concrete number to beat with a credit union or online lender.
Frequently asked questions
- What is a good auto loan rate right now?
- The Federal Reserve's G.19 release puts the average bank rate at 7.14% for a 60-month new-car loan and 6.97% for a 72-month loan in Q2 2026, with finance-company loans averaging 6.3% over 67 months. The 72-month rate sitting below the 60-month rate is unusual — the term premium has inverted — so a longer term is not automatically the more expensive one at banks today.
- Why does the monthly payment not change when I add an extra payment?
- Because the "Monthly payment" output reports the scheduled payment only — $513.61 on the defaults — while the extra is applied on top of it. The amortisation schedule does include it, showing $613.61 per month, and the payoff time correctly falls from 60 to 49 months. If you set an extra payment, take your budgeting figure from the schedule rows.
- Should I take a longer term for a lower payment?
- Only when the rate is near zero. On a $26,000 loan at 6.9%, moving from 60 to 84 months cuts the payment from $513.61 to $391.14 but raises total interest from $4,816.32 to $6,855.75 — $2,039.43 for $122.47 of monthly relief. At 0% the same 84-month loan costs nothing extra, so stretching it is free.
- How much should I put down on a car?
- Enough that the loan balance never exceeds the car's value. On a $32,000 car over 84 months with nothing down, the balance after twelve months is $28,316.11 while a car that depreciated 20% is worth about $25,600 — roughly $2,716 underwater. The same loan with $6,000 down leaves a $23,006.84 balance and about $2,593 of equity instead.
- Does this calculator include sales tax, insurance or maintenance?
- No. The price input is meant to be the out-the-door figure, so you must add sales tax, title, registration and documentation fees to it yourself — 6% sales tax on a $32,000 car is $1,920. Insurance, fuel, maintenance and any extended warranty sit entirely outside the model, and they are real monthly costs that belong in your budget alongside the payment.
- Can I pay off an auto loan early?
- Almost always, and without penalty. Auto loans are simple-interest contracts, so interest accrues on the outstanding balance and paying principal early stops that interest immediately — on the defaults, $100 a month extra removes $931.51 of interest and 11 months from the term. Check the contract for a prepayment clause anyway, since a minority of dealer programmes discourage early payoff.
- What does Payoff time mean?
- It is the number of months until the balance reaches zero given your extra payment. On the defaults it reads 60 months with no extra and 49 months with $100 a month added — eleven months earlier than the contract term. It is the clearest single indicator of whether your extra payment is doing meaningful work.
- How is the interest split calculated each month?
- Interest is the outstanding balance multiplied by the monthly rate — 6.9% ÷ 12, or 0.575% — and everything left of the payment goes to principal. On the defaults month one charges $149.50 of interest on $26,000 and sends $364.11 to principal; by month 36 the balance is down to $11,483.05 and interest is only $68.59. That shifting split is why early extra payments are worth far more than late ones.