Auto Loan Calculator

🚗 How Auto Loans Work

Auto loans are secured loans where the vehicle serves as collateral. You borrow money to purchase a car and repay it with interest over a fixed term (typically 3-7 years). If you default, the lender can repossess the vehicle.

Key point: Longer loan terms mean lower monthly payments but more interest paid overall.

💰 Down Payments & Interest

A larger down payment reduces your loan amount, monthly payment, and total interest. It also helps you avoid being underwater (owing more than the car is worth) as vehicles depreciate quickly.

Recommended: Put down at least 20% for new cars and 10% for used cars to secure better rates and avoid negative equity.

📉 Loan Terms Explained

3-4 years: Higher monthly payments, less total interest, less risk of negative equity.

5-6 years: Moderate monthly payments, balanced approach for most buyers.

7-8 years: Lowest monthly payments but significantly higher total interest and greater depreciation risk.

⚡ Tips to Pay Off Faster

• Make biweekly payments (26 half-payments per year = 13 full payments)
• Round up your monthly payment to the nearest $50 or $100
• Apply tax refunds or bonuses directly to principal
• Refinance if rates drop or your credit improves
• Avoid extended warranties that increase your loan amount

How is an auto loan payment calculated?

Auto loan payments are calculated using the standard amortization formula: M = P × [r(1+r)^n] / [(1+r)^n - 1], where P is the loan amount (vehicle price minus down payment), r is the monthly interest rate, and n is the number of monthly payments.

What interest rate should I expect on a car loan?

Auto loan rates typically range from 3% to 10% based on credit score and loan term. As of 2025, average rates are 6-7% for new cars with good credit, and 8-12% for used cars. Excellent credit (750+) qualifies for the lowest rates.

How much does a down payment reduce my loan?

A down payment reduces your loan dollar-for-dollar and lowers monthly payments and total interest. A 20% down payment is recommended to avoid negative equity and may qualify you for better rates.

Should I pay extra on my auto loan?

Paying extra can save hundreds in interest and help you own your car sooner. Extra payments go directly to principal. However, check for prepayment penalties and ensure you have emergency savings first.

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