How it works
Cars lose value the moment they leave the lot — typically 10% in the first month and over 20% in the first year. That makes auto financing fundamentally different from a mortgage: you're borrowing against an asset that is actively depreciating, not one that slowly builds equity. The math has to account for that reality, which is why trade-in credits and tax treatment matter so much in car deals.
This calculator takes the inputs unique to vehicle purchases — vehicle price, down payment, trade-in value, and sales tax — and distills them into a single monthly payment figure. Unlike a generic loan calculator, it handles the dealer-specific mechanics: your trade-in reduces the taxable amount before the loan principal is even calculated, and sales tax is typically rolled into the financed balance rather than paid separately at signing.
The result is a payment that reflects what you'll actually write a check for each month after the dealership has applied every credit and folded in every required cost.
The formula
M = P × [r(1 + r)^n] / [(1 + r)^n − 1]
Where P is the loan principal (vehicle price minus down payment and trade-in, plus sales tax on the net cost), r is the monthly interest rate (annual rate ÷ 12), and n is the loan term in months.
Worked example
Consider a $28,000 new car with a $3,000 trade-in applied, a 60-month term, and 7.2% APR. Assume a 6% sales tax rate and no separate down payment for simplicity.
Net vehicle cost: $28,000 − $3,000 = $25,000
Sales tax: $25,000 × 0.06 = $1,500
Loan principal: $25,000 + $1,500 = $26,500
Monthly rate: 0.072 ÷ 12 = 0.006
(1 + 0.006)^60 = 1.432044
Numerator: 0.006 × 1.432044 = 0.008592
Denominator: 1.432044 − 1 = 0.432044
Monthly payment: $26,500 × (0.008592 / 0.432044) ≈ $526.85
So the monthly payment lands near $527. Over 60 months, total payments come to roughly $31,611, meaning about $5,111 goes to interest on top of the $26,500 principal.
Things to watch
Depreciation outpaces your payoff schedule in the early years of most car loans. A new car losing 20% of its value in year one means a $28,000 vehicle is worth around $22,400 while you still owe over $25,000 on it. That gap — being "underwater" or "upside down" — is why gap insurance exists and why large down payments matter more on cars than on homes.
| Factor | Impact on monthly payment |
|---|---|
| Larger down payment | Lowers principal directly |
| Higher trade-in value | Reduces both principal and sales tax |
| Longer term | Decreases payment, increases total interest |
| Higher APR | Raises payment and total cost substantially |
This calculator gives you an estimate based on the numbers you enter. It does not account for dealer fees, registration, title costs, or variations in how your state handles trade-in tax credits. Always request a full breakdown from the lender before signing.