Estimate your car loan payments, interest, and payoff date.
Principal & Interest
There are several types of auto loans available, each with unique characteristics that can affect your monthly payment and total cost:
| Loan Type | Description | Best For | Typical Rate Range |
|---|---|---|---|
| Dealership Financing | Arranged through the car dealer with partner lenders | Convenience and special manufacturer promotions | 4.5-9% |
| Direct Bank/Credit Union Loans | Obtained directly from a financial institution | Lower rates for members with good credit | 3-7% |
| Online Lenders | Financing through internet-based lenders | Convenience and potentially faster approval | 3.5-8% |
| Buy Here Pay Here (BHPH) | Financing directly through the dealership | Those with poor credit who can't qualify elsewhere | 15-25% |
Important: Always compare offers from multiple sources. The convenience of dealer financing often comes with higher interest rates, while pre-approval from banks or credit unions gives you negotiating leverage at the dealership.
The length of your auto loan significantly impacts both your monthly payment and the total amount you'll pay over the life of the loan.
| Term Length | Monthly Payment | Total Interest Paid | Total Cost |
|---|---|---|---|
| 3 years (36 months) | $740 | $1,640 | $26,640 |
| 5 years (60 months) | $466 | $2,960 | $27,960 |
| 7 years (84 months) | $352 | $4,568 | $29,568 |
Example based on $25,000 loan at 5% interest rate
While longer terms reduce your monthly payment, they significantly increase the total interest paid over the life of the loan. Additionally, longer loans often come with higher interest rates and increase the risk of being "underwater" (owing more than the car is worth) for a longer period.
Tip: A good rule of thumb is the 20/4/10 rule: Make a 20% down payment, keep the loan term to 4 years or less, and keep total transportation costs (payment, insurance, gas, maintenance) under 10% of your monthly income.
Several key factors determine the interest rate you'll be offered on an auto loan:
| Credit Score | Average APR |
|---|---|
| 781-850 (Excellent) | 2.5-3.5% |
| 661-780 (Good) | 3.5-5.5% |
| 601-660 (Fair) | 6.5-9.5% |
| 501-600 (Poor) | 11-16% |
| 300-500 (Very Poor) | 15-25% |
Pro Tip: Always get pre-approved for an auto loan before visiting dealerships. Having a pre-approval gives you negotiating power and prevents dealers from marking up your interest rate, which is a common practice known as "rate padding."
Beyond the basic monthly payment, several other factors should influence your auto loan decision:
| Consideration | Why It Matters |
|---|---|
| Total cost of ownership | Include insurance, maintenance, fuel and depreciation in your budget |
| Prepayment penalties | Some loans charge fees if you pay off early; avoid these when possible |
| Gap insurance | Covers the difference between loan balance and car value if totaled |
| Refinancing potential | Consider whether you might qualify for better rates in the future |
| Loan-to-value ratio | Aim for 80-90% to avoid being underwater on your loan |
Watch Out: Dealers often focus on the monthly payment rather than the total loan cost. A $50 lower monthly payment might seem attractive, but could cost thousands more over a longer term. Always compare the total cost of competing offers.
Before finalizing any auto loan, calculate your debt-to-income ratio including the new payment. Financial experts recommend keeping total debt payments below 36% of your gross monthly income, with transportation costs below 15%.
As a recent college graduate, Alex wanted reliable transportation without stretching their budget. Instead of being tempted by new car offers, they focused on a slightly used vehicle with proven reliability and lower depreciation.
Maria, a project manager with two children, needed a larger, safer vehicle for her family. She researched vehicles with high safety ratings and strong resale value, focusing on models with manufacturer incentives.
After bankruptcy two years earlier, Marcus needed reliable transportation but faced limited financing options. He chose a modest, reliable vehicle with a large down payment to secure financing.
While a longer loan term (72 or 84 months) will reduce your monthly payment, it comes with significant drawbacks that often make it a poor financial choice:
| Term Length | Monthly Payment | Total Interest | Total Cost | Additional Cost vs. 48 Months |
|---|---|---|---|---|
| 48 months | $552 | $2,496 | $26,496 | $0 |
| 60 months | $452 | $3,120 | $27,120 | +$624 |
| 72 months | $386 | $3,792 | $27,792 | +$1,296 |
| 84 months | $339 | $4,476 | $28,476 | +$1,980 |
Based on $24,000 loan at 5% interest
Beyond the higher overall cost, longer loans create these additional risks:
Better approach: If you need a longer term to afford the monthly payment, it's usually a sign that the vehicle is too expensive for your budget. Consider a less expensive vehicle, a larger down payment, or improving your credit score to get a better rate.
Zero-percent financing can be an excellent deal, but it often comes with hidden tradeoffs that may make it less attractive than it initially appears:
Comparing Options: When faced with 0% financing or a rebate, use this calculation:
Example: Car costs $30,000. Option A: 0% for 60 months = $500/month with no rebate. Option B: $3,000 rebate with 4.9% for 60 months = $509/month. Total cost A: $30,000. Total cost B: $30,540. In this case, 0% financing is slightly better if you keep the car for the full term.
Paying off an auto loan early can be financially beneficial, but it depends on several factors:
Smart Strategy: Even if you don't pay off the loan entirely, making extra principal payments early in the loan term can significantly reduce total interest. Adding just $50-100 to each monthly payment can shorten your loan term by months or years.
When making extra payments, always specify that they should be applied to principal only. Some lenders will otherwise apply extra payments to future installments instead, which doesn't reduce your interest costs as effectively.
Your credit score has a profound impact on auto loan terms, potentially affecting your costs by thousands of dollars:
| Credit Score Range | Average APR (New) | Average APR (Used) | Monthly Payment* | Interest Over 5 Years* |
|---|---|---|---|---|
| 781-850 (Excellent) | 2.8% | 3.7% | $445 | $1,700 |
| 661-780 (Good) | 4.2% | 5.5% | $463 | $2,780 |
| 601-660 (Fair) | 7.8% | 11.4% | $507 | $5,420 |
| 501-600 (Poor) | 12.5% | 17.2% | $566 | $9,960 |
| 300-500 (Very Poor) | 14.9%+ | 20.5%+ | $597+ | $12,820+ |
*Based on $25,000 new car loan for 60 months
Credit scores also affect:
If Your Score Is Low:
When financing a vehicle, various fees can significantly increase your costs. Understanding these charges helps you negotiate effectively and avoid unnecessary expenses:
| Fee Type | Typical Amount | Negotiable? | Notes |
|---|---|---|---|
| Documentation Fee | $75-$500 | Sometimes | Covers paperwork processing; often capped by state law |
| Origination Fee | 0-3% of loan | Yes | Lender charge for processing the loan |
| Title/Registration | $25-$250 | No | Government fees vary by state |
| Destination Fee | $900-$1,500 | No | Manufacturer charge for shipping vehicle |
| Advertising Fee | $400-$1,000 | Yes | Dealer passes marketing costs to you |
| Dealer Prep Fee | $100-$400 | Yes | For preparing vehicle for sale; often redundant |
| Market Adjustment | Varies widely | Yes | Added to in-demand vehicles; pure profit |
Red Flags:
Always negotiate the vehicle price first, then discuss financing separately. Focus on the total cost rather than just the monthly payment, and get all fees in writing before signing anything.