A car loan costs the price minus everything you hand over up front, plus interest on the rest. Trade-ins and down payments shrink the financed amount, and the interest shrinks with it.
How the payment is built
The lender charges interest on whatever is financed: the price, minus your down payment and any trade-in credit. A longer term lowers the monthly payment but stretches the interest over more months, so the total cost rises even though each payment falls. That trade — smaller payments for a larger total — is the whole decision.
Sales tax and fees are not in this calculator because they vary by state and dealer. If you finance them, add them to the price before you enter it; the interest on a rolled-in fee is interest you pay for years.
The formula
The same amortization formula a mortgage uses: monthly payment = P × r(1+r)ⁿ ÷ ((1+r)ⁿ − 1), where P is the financed amount, r the monthly rate and n the number of months. Car loans are simple amortization — there is no escrow and no insurance layer, which is why the number matches the lender's offer exactly.
Why the term matters more than the rate
A buyer quoted 7.5% over 5 years and 7.9% over 7 years on the same car pays less per month on the second, and usually far more in total. Compare both here before signing: the "lower payment" pitch at the dealership is almost always a longer term, not a better deal.
The cost-per-$1,000 figure makes terms comparable at a glance. It is what the loan costs for each thousand borrowed, so a $20,000 loan at $20 per thousand costs $400 a month regardless of what price the sticker showed.
Frequently asked questions
Should I put money down on a car?
Usually yes. Cars depreciate fast, and a loan larger than the car's value leaves you "upside down" — owing more than it is worth if you sell or it is totaled. A down payment of at least 20% keeps you ahead of depreciation.
Does my trade-in reduce the loan?
Yes — its credit is applied to the price like a down payment. Watch for dealers who show a higher trade-in figure and a higher price at the same time; only the difference matters, and this calculator works on the difference.
Is 0% financing better than a cash rebate?
Run both through the calculator. A rebate shrinks the financed amount today; 0% financing removes the interest but usually forgoes the rebate. On shorter terms the rebate often wins, because the interest 0% saves is smaller than the rebate itself.