The short answer
- Your payment depends on the amount financed, the APR and the number of months.
- A $35,000 car with $4,000 down, a $6,000 trade-in, 7% sales tax and $800 of fees, financed at 7.2% for 60 months, costs $553.70 a month.
- Stretching the same loan to 84 months cuts the payment to $422.76 but adds $2,289 of interest.
- Interest on a loan for a new, US-assembled car can be deducted, up to $10,000 a year, from 2025 to 2028.
How a car payment is worked out
An auto loan is an installment loan: you borrow a fixed amount and repay it in equal monthly payments. Each month the lender charges interest at the APR ÷ 12 on what you still owe, and the rest of your payment reduces the balance. Early payments are mostly interest; later ones are mostly principal. The payment formula is the same one used for a mortgage or any fixed loan:
Payment = amount × r ÷ (1 − (1 + r)−n), where r is the APR ÷ 12 and n is the number of months.
The calculator does this for you, then builds the full schedule so you can see the balance and the interest paid in any month. Most car loans use simple interest, which means interest is charged on the balance each day or month and never on past interest, so paying early or paying extra cuts the interest straight away.
A worked example
- Price$35,000
- Less trade-in−$6,000
- Sales tax: 7% of $29,000+$2,030
- Fees+$800
- Less down payment−$4,000
- Amount financed$27,830
- Interest over 60 months$5,392
Counting the down payment, the trade-in and every payment, the car costs $43,222. Of the $1,848 of interest in the first year, almost all is charged on the large starting balance.
What goes into the amount financed
The amount financed is what you actually borrow. It starts with the agreed price and then:
- Down payment and trade-in equity reduce it.
- Cash rebates reduce it if they are applied to the deal.
- Sales tax, title and registration and dealer fees increase it if you finance them.
- Negative equity on your trade-in, service contracts and GAP insurance increase it.
Read the "amount financed" line on the retail installment contract. The federal Truth in Lending Act requires it, along with the APR, the finance charge and the total of payments, so you can check the dealer’s figures against this calculator.
Sales tax on a car
Almost every state taxes car purchases. Alaska, Delaware, Montana, New Hampshire and Oregon have no general state sales tax, though some charge title or registration fees instead. Elsewhere the rate is usually the state rate plus any county or city rate where you register the car, not where you buy it.
Many states use a separate motor vehicle tax with its own rate, so the general sales tax may not be what you pay. The calculator fills in the state rate plus the state’s average local rate as a starting point. Check your state’s motor vehicle or revenue department and type the exact rate if it differs. The sales tax calculator lists every state’s general rate.
Trade-ins and the tax credit
In most states you pay sales tax only on the price minus your trade-in. On the example, that means tax on $29,000 instead of $35,000, saving $420 and cutting the payment from $562.05 to $553.70.
- Taxed amount
- $29,000
- Sales tax at 7%
- $2,030
- Payment
- $553.70
- Taxed amount
- $35,000
- Sales tax at 7%
- $2,450
- Payment
- $562.05
A few states give no credit for a trade-in, including California, Hawaii and Virginia, and some others cap it. Choosing one of those three states turns the switch off for you. In states with the credit, trading in at the dealer can be worth more than a private sale that brings a slightly higher price.
Negative equity
You have negative equity, or are "upside down", when you owe more on your car than it is worth. Dealers often offer to "pay off your loan", but the shortfall is added to the new loan.
- Negative equity rolled in$4,000
- Amount financed$37,550
- Monthly payment$747.08
Rolling over negative equity means paying interest on a car you no longer own and starting the new loan upside down. If you can, keep the old car until the loan is paid down, or pay the shortfall in cash.
Rebates and 0% offers
A cash rebate from the maker lowers the amount you borrow. In most states, sales tax is still charged on the price before the rebate, which is how the calculator treats it. A $2,000 rebate on the example cuts the amount financed to $25,830 and the payment to $513.91.
Makers often offer a choice: a rebate, or a very low APR such as 0% or 1.9%. Work out both. Put the rebate in with your bank’s rate, then try the low rate with no rebate. On shorter loans the rebate often wins; on longer ones the low rate can.
Choosing a loan term
| Term | Monthly payment | Total interest | Total cost of the car |
|---|---|---|---|
| 36 months | $861.86 | $3,197 | $41,027 |
| 48 months | $669.01 | $4,282 | $42,112 |
| 60 months | $553.70 | $5,392 | $43,222 |
| 72 months | $477.15 | $6,525 | $44,355 |
| 84 months | $422.76 | $7,681 | $45,511 |
Longer loans make cars look affordable, and 72- and 84-month loans are now common. But each extra year adds interest and keeps you upside down for longer, because a new car loses a large part of its value in the first few years. If you need 72 months or more to afford the payment, consider a cheaper car or a bigger down payment.
How much the rate matters
The Federal Reserve’s G.19 survey put the average bank rate on a 72-month new car loan at about 7.2% in August 2026. Used car loans and loans to borrowers with lower credit scores often cost much more. Moving from 14% to 7.2% saves $5,631 on this loan.
Credit scores and auto loan rates
Lenders price auto loans mainly on your credit score, the loan term, the age of the car and how much you put down. The best rates go to scores in the mid-700s and above. Before you shop, check your credit reports for free at AnnualCreditReport.com and fix any errors.
Rate shopping does not have to hurt your score: credit scoring models count several auto loan inquiries made within a short period, typically 14 to 45 days depending on the model, as one. So get several quotes in the same couple of weeks.
Preapproval and dealer financing
A preapproval from a bank or credit union tells you the rate you qualify for before you visit the dealer. Dealers arrange financing through lenders and may add a markup to the rate the lender offers them. With a preapproval in hand you can ask the dealer to beat it, and you will know whether a "special" rate is really special.
Negotiate in this order
The price of the car, then your trade-in, then the financing. Discussing only the monthly payment lets a dealer reach any figure by stretching the term or trimming the trade-in.
Fees and add-ons
Expect title and registration fees set by your state and a dealer documentation fee, which some states cap and others do not. Add-ons such as extended warranties, GAP insurance, paint protection and service contracts are optional. If they are financed, you pay interest on them too.
GAP insurance can make sense if you put little down or take a long loan, because it covers the gap between the loan and the car’s value if it is written off. It is often cheaper from your own auto insurer than from the dealer.
Paying tax and fees upfront
If you pay the sales tax and fees in cash instead of financing them, the example loan falls to $25,000, the payment to $497.39 and the interest to $4,844, saving $548 of interest. You pay $6,830 at signing instead of $4,000. Turn off "Add tax and fees to the loan" under More options to compare.
The car loan interest deduction
The One Big Beautiful Bill Act created a deduction for interest on car loans for the tax years 2025 through 2028. You can take it whether or not you itemize, on the new Schedule 1-A. The IRS rules:
- Up to $10,000 of interest a year.
- The loan must be taken out after December 31, 2024, to buy a new vehicle for personal use, secured by the vehicle. Leases and used cars do not qualify.
- The vehicle’s final assembly must be in the United States. The window sticker or the VIN shows the plant; NHTSA’s VIN decoder can check it.
- Cars, minivans, vans, SUVs, pickups and motorcycles under 14,000 pounds gross vehicle weight.
- The limit falls by $200 for each $1,000 of modified AGI over $100,000 ($200,000 for joint filers), and is gone at $150,000 ($250,000).
- You must give the VIN on your return. Lenders report the interest on the new Form 1098-VLI.
| Modified AGI | Most you can deduct |
|---|---|
| $100,000 or less | $10,000 |
| $120,000 | $6,000 |
| $135,000 | $3,000 |
| $150,000 or more | $0 |
On the example loan, first-year interest is $1,848. In the 22% bracket, deducting it saves about $407 of federal tax. Turn on the switch under More options to see your figure.
How much car you can afford
A common rule of thumb is to keep the car payment under about 10% to 15% of your take-home pay and all car costs, including insurance, fuel and maintenance, under about 20%. Lenders also look at your debt-to-income ratio. The debt-to-income calculator shows how a new payment changes it, and the paycheck calculator gives your take-home pay.
Paying off early and refinancing
Most auto loans have no prepayment penalty, but check your contract. Extra payments go to principal and cut the interest. If rates fall or your credit improves, refinancing can lower the rate; a refinanced loan for a qualifying car can still count for the interest deduction. Avoid refinancing into a longer term just to lower the payment. The general loan calculator shows the effect of extra payments on any fixed loan.
New or used
A used car costs less and has already taken its steepest drop in value, but used car loans usually carry higher rates and shorter terms. New cars may come with low promotional rates and qualify for the interest deduction if assembled in the US. Compare the total cost of ownership over the years you plan to keep the car, not only the payment.
Buying or leasing
A lease is a long rental: payments are lower because you pay for the car’s expected loss in value plus a finance charge, then hand it back. Leases suit people who want a new car every few years and drive within the mileage limit. Buying costs more each month but you own the car once the loan is paid, and lease payments do not qualify for the interest deduction.
Common mistakes
- Shopping by monthly payment instead of price and total cost.
- Taking an 84-month loan without seeing the extra interest.
- Rolling negative equity into a new loan.
- Accepting the first rate offered without a preapproval.
- Forgetting sales tax, title and registration in the budget.
- Buying add-ons you did not ask for: read every line of the contract before signing.
Key numbers
| Item | Figure |
|---|---|
| Average 72-month new car rate at banks (Fed G.19, August 2026) | about 7.2% |
| Car loan interest deduction, 2025 to 2028 | Up to $10,000 a year |
| Deduction phase-out starts (single / joint) | $100,000 / $200,000 MAGI |
| Deduction gone at (single / joint) | $150,000 / $250,000 MAGI |
| States with no trade-in tax credit | Including California, Hawaii and Virginia |
| Example payment: $27,830 at 7.2% for 60 months | $553.70 |