Understanding how auto loans are calculated helps you make better financial decisions when buying a vehicle. This calculator uses the standard amortization formula used by lenders across the United States.

Key Concepts

• Principal: The total amount you borrow, which includes the vehicle price minus down payment and trade-in value, plus applicable sales tax on the difference.
• Trade-In Tax Advantage: In most US states, the trade-in value reduces the taxable amount. If you trade in a car worth $10,000 toward a $30,000 vehicle, you only pay sales tax on $20,000.
• APR: Annual Percentage Rate includes the interest rate plus any additional finance charges, giving you the true cost of borrowing.

The Amortization Formula

Monthly Payment = P × (r × (1+r)^n) / ((1+r)^n - 1)

Where: P = Principal, r = monthly interest rate, n = number of months

Why Extended Terms Are Risky

84-month loans may offer lower monthly payments, but they often come with higher interest rates and leave you 'underwater' (owing more than the car is worth) for most of the loan term.