CFP® specializing in consumer debt, auto financing strategies, and budgeting for large purchases.
The **Auto Loan Calculator** helps you estimate your monthly car payment or determine the maximum loan amount you can afford. This versatile tool can solve for the missing variable: Loan Principal, Monthly Payment, Annual Rate, or Loan Term (Months).
Auto Loan Calculator
Instructions: Enter values for any three of the four parameters (P, F, V, Q) to solve for the missing one.
Loan Parameters
Auto Loan Amortization Formula
Auto loan payments are calculated using the standard Amortization formula based on the Annual Percentage Rate (APR), which is the interest rate ($R$) divided by 12 months for the periodic rate ($i$).
Monthly Payment ($M$):
$$M = P \left[ \frac{i(1+i)^N}{(1+i)^N – 1} \right]$$The calculator uses rearrangement and iterative solving methods to find $P$, $M$, $R$, or $N$ when one is unknown.
Formula Source: Consumer Financial Protection Bureau (CFPB)Variables Explained (P, F, V, Q – Parameters)
- $P$ (Loan Principal): The amount borrowed, typically the vehicle cost minus any down payment and trade-in value.
- $M$ (Monthly Payment, $F$): The fixed amount paid each month.
- $R$ (Annual Interest Rate/APR, $V$): The annual rate applied to the remaining loan balance.
- $N$ (Loan Term in Months, $Q$): The total number of months in the repayment period (e.g., 60 or 72 months).
Related Car Financing Calculators
Make smarter decisions on your next vehicle purchase:
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What is an Auto Loan?
An auto loan is a secured installment loan used to finance the purchase of a motor vehicle. It is secured because the vehicle itself serves as collateral. The loan is repaid over a fixed period (the term) through regular monthly payments that consist of both principal and interest. The cost of the loan is primarily determined by the principal, the Annual Percentage Rate (APR), and the loan term.
When shopping for an auto loan, the APR is the most critical figure, as it reflects the true cost of borrowing, including interest and certain required fees. Choosing a shorter term (like 48 or 60 months) generally leads to lower total interest paid but requires higher monthly payments, whereas a longer term (like 72 or 84 months) offers lower payments but results in significantly higher interest costs over the life of the loan.
How to Calculate Auto Loan Payment (Example)
You need to borrow \$25,000 ($P$) for a new car at a 5% APR ($R$) over 60 months ($N$). We are solving for $M$ (Monthly Payment):
- Step 1: Determine the Monthly Interest Rate ($i$)
$i = 5\% / 12 = 0.004167$
- Step 2: Calculate the Amortization Factor
Factor $\approx i(1+i)^N / ((1+i)^N – 1)$ where $N=60$. Factor $\approx 0.018871$
- Step 3: Apply the Monthly Payment Formula
The Monthly Payment $M = P \times \text{Factor} = \$25,000 \times 0.018871 \approx \mathbf{\$471.79}$.
The total cost for the 60 months would be $\$471.79 \times 60 = \$28,307.40$, meaning you pay \$3,307.40 in total interest.
Frequently Asked Questions (FAQ)
While longer terms mean lower monthly payments, they often result in higher overall interest paid and an increased risk of being “upside-down” (owing more than the car is worth) early in the loan term. Most financial advisors recommend keeping terms under 60 months.
A larger down payment reduces the principal amount borrowed, which immediately lowers your monthly payment and significantly reduces the total interest paid over the life of the loan. It also helps avoid being upside-down on the loan.
The interest rate is the cost of borrowing the principal. The APR (Annual Percentage Rate) includes the interest rate plus certain mandatory fees (like origination fees), making it a more accurate reflection of the total annual cost of the loan.
Yes. The value of your trade-in vehicle is deducted from the purchase price of the new car before the loan principal is calculated, effectively reducing the amount you need to borrow.