How the result is calculated
Car financing has more moving parts than a plain personal loan, and the biggest of them depends on where you are buying. This guide follows the dealer's sequence through three cases: a car bought with nothing down, the same car with cash and a trade-in, and a monthly budget worked backwards to a sticker price.
Loanprice + tax + fees − down payment − trade equity
PaymentLoan × r ÷ (1 − (1 + r)−n)
- price
- the advertised price of the car
- tax
- the purchase tax, where the country adds one on top: the rate × the taxable amount
- trade equity
- the trade-in's value minus what you still owe on it
- r
- the contractual annual interest rate divided by 12
- n
- the number of monthly payments
The second line is the standard amortisation formula. APR may include fees and is not necessarily the rate used to calculate an instalment, so enter the interest rate from the loan agreement and put financed fees in the fees input. Interest is charged each month on the remaining balance; the yearly table shows how much of each year's payments reduces the debt.
Worked example
| Item | Amount | How it is obtained |
|---|---|---|
| Vehicle price | $35,000.00 | Vehicle price |
| Sales tax | $2,450.00 | 7% × 35,000, charged on the price after any trade-in |
| Down payment and trade equity | $0.00 | none entered |
| Amount financed | $37,450.00 | 35,000 + 2,450 |
| Rate per month, r | 0.54167% | 6.5% ÷ 12 |
| Number of payments, n | 60 | the term |
| Monthly payment | $732.75 | 37,450 × 0.0054167 ÷ (1 − 1.0054167−60) |
| Total interest | $6,515.12 | 60 × 732.75 − 37,450, with the final payment adjusted for rounding |
| Total cost of the car | $43,965.12 | all 60 payments; no cash or trade equity was put in |
| Item | Amount | How it is obtained |
|---|---|---|
| Taxable amount | $32,000.00 | 35,000 − 3,000: the trade-in comes off before tax here |
| Sales tax | $2,240.00 | 7% × 32,000 |
| Amount financed | $29,240.00 | 35,000 + 2,240 − 5,000 − 3,000 |
| Monthly payment | $572.11 | 29,240 × 0.0054167 ÷ (1 − 1.0054167−60) |
| Total interest | $5,087 | over five years |
| Total cost of the car | about $42,300 | 5,000 cash + 3,000 trade equity + 60 payments |
The trade-in credit is worth more than it looks: tax falls on $32,000 rather than $35,000, saving $210 at 7%.
| Item | Amount | How it is obtained |
|---|---|---|
| Largest loan $500 a month supports | $25,554.34 | the present value of 60 payments of 500 at 0.54167% a month |
| Plus the down payment | $30,554.34 | 25,554.34 + 5,000 |
| Maximum sticker price | $28,555 | 30,554.34 ÷ 1.07, because the price plus 7% tax must fit |
In a country where the tax is already inside the price, the same budget stretches to the full $30,554.
Reading the result
The headline is the monthly payment, with the number of payments and the amount financed beneath it. Sales tax, amount financed, total interest and total cost of the car each open on the working that produced them, and the total cost counts everything you put in: cash, trade equity and every payment.
The schedule switches between By year and Every month. A year row adds up its payments to the cent, so the years foot to the totals; the monthly view shows each payment's split and the running balance. The CSV download exports whichever view is on screen.
What changes the result
Purchase tax is not a field in most countries
This is the part that makes a car loan calculator country-specific, and there are only two arrangements. Where the tax is added on top, the advertised price is not what you finance, so the calculator asks for a rate and adds it before working out the loan. Where it is already inside the price, the field disappears rather than sitting at zero, because a zero implies a choice you could change and you cannot. A trade-in there still reduces what you borrow; it just cannot reduce a tax that was never itemised.
| Arrangement | Countries | Trade-in credit |
|---|---|---|
| Tax added on top of the price | United States, Canada, India, Japan, Sri Lanka | US and Canada |
| Tax already inside the price | Britain, Ireland, Germany, France, Spain, Netherlands, Sweden, Finland, Australia, New Zealand | not applicable |
In the United States sales tax is added on top at roughly 7%, set by state and locality, and in most states it is charged on the price after the trade-in credit. Each country's own page states which arrangement applies there and where its rate came from.
Trade-ins and negative equity
A trade-in reduces the loan by its equity, what the car is worth minus what you still owe on it. If you owe more than the car is worth, the shortfall is negative equity and it is added to the new loan; the calculator warns you when that happens, because you end up financing more than the new car costs.
Whether the trade-in also reduces the purchase tax is the country's rule rather than a setting, so the calculator follows the majority treatment where you are buying and says which one it used. California, Virginia, Hawaii, Kentucky, Maryland, Michigan in part, and a few other states tax the full price instead: the difference is your tax rate times the trade-in value, so add that amount to the fees field to model one of those states.
Choosing the term
The term buttons make the trade-off visible. Stretching a $29,240 loan from 60 to 84 months drops the payment from $572 to about $434, but total interest climbs from roughly $5,100 to about $7,200, and for the first few years you would owe more than the car is worth, because cars lose value faster than a long loan repays. Lenders often charge higher rates beyond 72 months as well, and the calculator flags terms over 72 months for these reasons.
| Term | Monthly payment | Total interest on $29,240 at 6.5% |
|---|---|---|
| 36 months | $896.18 | $3,022 |
| 48 months | $693.43 | $4,044 |
| 60 months | $572.11 | $5,087 |
| 72 months | $491.52 | $6,150 |
| 84 months | $434.20 | $7,232 |
Rates make an even bigger difference. Manufacturer 0% promotions are genuinely interest-free, and the calculator shows a straight-line payment, but they usually come instead of a cash rebate. If a rebate is on offer, run the loan at your bank's rate with the price reduced by the rebate and compare total cost.
What is not included
- Insurance, warranties and GAP cover. Separate costs unless the dealer finances them; if so, add them to fees.
- Depreciation. The total cost figure counts what you pay, not what the car will be worth afterwards.
- Variable rates or balloon payments. The loan is a plain fixed-rate amortising loan.
- Rebates. Reduce the price manually to model a manufacturer rebate.
- Emissions and luxury surcharges. Where a country adds one on top of a high-emission or expensive car, it is not modelled; add it to fees.
Using the result
Set the payment against your monthly budget, then look at total interest and total cost before choosing a term. If you are comparing dealer financing with a bank or credit-union pre-approval, enter each rate with the same price and term; the difference in total interest is what the dealer's rate really costs.