Car loan interest calculator

What drives the interest on a car loan

Three things set the interest you pay: the amount financed, the rate and the term. Cutting any one of them cuts the interest, and the effect compounds. A lower credit score raises the rate, and a longer term gives interest more time to accrue.

The rate table on this page shows each percentage point’s effect on the same loan, and the payment-by-term table shows how a shorter term saves interest at the cost of a higher payment.

Ways to pay less interest

Improve your credit before applying, compare offers from a credit union, a bank and the dealer, shorten the term and make extra principal payments. Refinancing later can lower the rate if your credit has improved or market rates have fallen, as long as fees do not eat the savings.

$24,300 financed: payment by loan length

At 8% APR, financing $24,300 costs $492.72 a month over 60 months and $378.75 over 84 months. The longer loan lowers the payment by $113.97 but adds $2,251 in interest. Going the other way, 36 months raises the payment to $761.47 and cuts total interest to $3,113.

How the interest rate changes a 6-year loan

On the same $24,300 over 6 years, each full percentage point of APR moves the payment by about $11.96 and total interest by about $861. Rates depend on your credit score, the loan term and whether the car is new or used, so get a pre-approval from a bank or credit union before you walk into a dealership.

What a bigger down payment does

A down payment reduces what you finance, which cuts both the payment and the interest, and it protects you from owing more than the car is worth early in the loan, when new cars depreciate fastest. Here is the same $27,000 car at 8% over 6 years with different down payments.

Paying extra

Adding $100 a month to this loan would pay it off 16 months sooner and save $1,533 in interest, as long as your lender applies extra money to principal and charges no prepayment penalty. Ask before you start.

Can you afford a $27,000 car?

A common rule of thumb, the 20/4/10 guideline, suggests 20% down, a term of at most 4 years and total car costs under 10% of gross income. On payment alone, $426.06 a month points to a gross income of roughly $51,100 a year to stay at 10%, before insurance, fuel and maintenance. Here the down payment is 10% rather than 20% and the term of 72 months is longer than 48, which means a smaller monthly payment in exchange for more interest and a longer period of debt.

Will you owe more than the car is worth?

New cars commonly lose around 20% of their value in the first year and roughly 15% a year after that, though this varies by model. Using that rough rule on a $27,000 car, the car stays worth more than the loan from the end of the first year. Gap insurance can cover the difference if the car is totaled while you are underwater.