New car loan calculator

Depreciation is the hidden cost of a new car

A new car typically loses around a fifth of its value in the first year. If you finance most of the price over a long term, the balance falls more slowly than the value, which is called negative equity. Putting 20% down and keeping the term near 60 months keeps the loan balance below the car’s value.

Manufacturer promotions such as 0% or 1.9% APR can beat a bank loan, but they often replace a cash rebate. Run both numbers: take the lower total cost, not the lower rate.

What to negotiate besides the price

Negotiate the out-the-door price first, then talk about financing. Add-ons rolled into the loan, such as extended warranties, paint protection and gap insurance, raise the amount financed and the interest on it. Decline them or price them separately, and check what each really adds to your monthly payment using the fees field.

$37,130 financed: payment by loan length

At 6.5% APR, financing $37,130 (the $42,000 price plus 6.5% sales tax and $800 in fees minus $8,400 down) costs $726.49 a month over 60 months and $551.36 over 84 months. The longer loan lowers the payment by $175.13 but adds $2,725 in interest. Going the other way, 36 months raises the payment to $1,138.00 and cuts total interest to $3,838.

How the interest rate changes a 5-year loan

On the same $37,130 over 5 years, each full percentage point of APR moves the payment by about $17.52 and total interest by about $1,051. 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 $42,000 car at 6.5% over 5 years with different down payments.

Paying extra

Adding $100 a month to this loan would pay it off 8 months sooner and save $927 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 $42,000 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, $726.49 a month points to a gross income of roughly $87,200 a year to stay at 10%, before insurance, fuel and maintenance. Here the term of 60 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 $42,000 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.