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Auto Loans: What Dealers Don't Tell You
Average new car loan in 2024: $40,000 at 7.5% APR for 72 months = $686/month. You'll pay $49,392 total—$9,392 in interest alone. Extend to 84 months and that same loan costs $51,576 ($11,576 interest). Every year added costs thousands.
Three numbers matter: price, rate, and term. Negotiate price first (dealers make profit here), then rate (shop banks before visiting dealer), finally term (shorter = less interest). The "what's your monthly payment?" question is designed to hide the total cost. Focus on out-the-door price instead.
Interest Rate Ranges (2024)
| Credit Score | New Car APR | Used Car APR | $30K/60mo Payment |
|---|---|---|---|
| 720+ (Excellent) | 5.5-6.5% | 7.0-8.5% | $581 |
| 660-719 (Good) | 7.0-9.0% | 9.5-12% | $604 |
| 620-659 (Fair) | 10-14% | 14-18% | $649 |
| Below 620 (Poor) | 14-20% | 18-25% | $713 |
Pro tip: Check your credit score before shopping. Improving from 650 to 720 saves $1,440 in interest on a $30K loan.
The Real Cost of Longer Terms
New vs Used: The Real Math
New Car ($40K)
- Price: $40,000
- APR: 6.5% (60 months)
- Payment: $782/month
- Total paid: $46,920
- Interest: $6,920
Year 5 value: ~$20,000 (50% depreciation)
3-Year-Old Used ($25K)
- Price: $25,000
- APR: 8.0% (48 months)
- Payment: $610/month
- Total paid: $29,280
- Interest: $4,280
Year 5 value: ~$17,000 (saves $17,640)
Down Payment Impact
0% Down
$30K car, 7% APR, 60 months
Payment: $594/month
Total interest: $5,640
Underwater for 3 years
20% Down ($6K)
$30K car, 7% APR, 60 months
Payment: $475/month
Total interest: $4,512
Saves $1,128 in interest
Rule: 20% down minimum avoids negative equity and often qualifies for better rates.
Smart Shopping Strategy
Do This
- Get pre-approved from bank/credit union before dealer visit
- Negotiate out-the-door price, not monthly payment
- Keep loan term to 48-60 months max
- Put down 20% or more to avoid negative equity
- Consider certified pre-owned (CPO) for warranty + lower price
- Calculate total cost, not just monthly payment
Avoid This
- Telling dealer your max monthly payment (they'll hit that number with worse terms)
- Rolling negative equity from trade-in into new loan
- Dealer add-ons (extended warranties, paint protection, GAP insurance at inflated prices)
- Loans over 60 months (you'll be underwater too long)
- Signing same day—sleep on it and review paperwork carefully
Frequently Asked Questions
2024 rates:
Excellent credit (720+): 5.5-6.5% new, 7-8.5% used
Good credit (660-719): 7-9% new, 9.5-12% used
20/4/10 rule:
20% down payment
4-year loan maximum
Total car expenses under 10% of gross income
Used (2-3 years old) is usually smarter:
Saves 30-40% vs new
Someone else paid the depreciation
48-60 months max
Avoid 72-84 month loans—you'll be underwater (owe more than car's worth) for years
Minimum 20% for new cars
10-15% acceptable for used
Prevents negative equity and lowers interest costs
Get pre-approved first from bank/credit union
Use it as leverage—dealers may beat it, but you have backup
Usually yes, but check for prepayment penalties
Most loans allow early payoff without fees—saves interest
Don't roll negative equity into new loan
Keep current car longer or sell privately to pay difference
Usually no:
Extended warranties: overpriced, buy from manufacturer if needed
GAP insurance: buy from own insurer for 50% less
Lease only if: Write off for business, want new car every 3 years
Buying is cheaper long-term—you own the car after payoff