See our picks for the best auto loans in a variety of categories:
Shopping for a new or used car? Use our car loan calculator to see what your monthly payment might look like—and how much interest you would pay over the life of the loan.
Key Takeaways
- Many car buyers take out a loan to finance their purchase, either from the dealer or through a bank.
- The loan payments will be based primarily on the price of the car, whether it is new or used, the down payment, the length of the loan, and your credit score.
- Use the auto loan interest calculator before you head to the car lot so you'll be ready to find a car that fits your budget and negotiate the best deal.
Auto Loan Payment Calculator Results Explained
To use the car loan interest calculator, enter a few details about the loan, including:
- Vehicle cost: The amount you want to borrow to buy the car. If you plan to make a down payment or trade-in, subtract that amount from the car's price to determine the loan amount.
- Term: The amount of time you have to repay the loan. In general, the longer the term, the lower your monthly payment, but the higher the total interest paid will be. On the other hand, the shorter the term, the higher your monthly payment, and the lower the total interest paid will be.
- New/Used: Whether the car you want to buy is new or used. If you don't know the interest rate, this can help determine the rate you'll get (interest rates tend to be higher for used cars).
- Interest rate: The cost to borrow the money, expressed as a percentage of the loan.
After you enter the details, the auto loan payment and interest calculator automatically displays the results,including the dollar amounts for the following:
- Total monthly payment: The amount you'll pay each month for the duration of the loan. Some of each monthly payment goes toward paying down the principal, and part applies to interest.
- Total principal paid: The total amount of money you'll borrow to buy the car.
- Total interest paid: The total amount of interest you'll have paid over the life of the loan. In general, the longer you take to repay the loan, the more interest you pay overall. Add together the total principal paid and total interest paid to see the total overall cost of the car.
Use the auto loan calculator before you head to the car lot so you'll be ready to find a car that fits your budget and negotiate the best deal.
How Is Interest Calculated on a Car Loan?
An auto loan interest calculator shows the total amount of interest you'll pay over the life of a loan. If the calculator offers an amortization schedule, you can see how much interest you'll pay each month. With most car loans, part of each payment goes toward the principal (the amount you borrow), and part goes toward interest.
The interest you pay each month is based on the loan's then-current balance. So, in the early days of the loan, when the balance is higher, you pay more interest. As you pay down the balance over time, the interest portion of the monthly payments gets smaller.
You can use the car loan calculator to determine how much interest you owe, or you can do it yourself if you're up for a little math. Here's the standard formula to calculate your monthly car loan interest by hand:
Monthlyinterest=(12interestrate)×loanbalance
Here's an example, based on a $30,000 balance with a 6% interest rate:
=(120.06)×$30,000=0.005×$30,000Monthlyinterest=$150To convert a percent to a decimal, divide the percent by 100 and remove the percent sign. For example, 6% becomes the decimal 0.06 (6 ÷ 100 = 0.06).
What Is a Good APR for a Car Loan?
Interest on an auto loan can significantly increase the total cost of the car. For example, the interest on a $30,000, 36-month loan at 6% is $2,856. The same loan ($30,000 at 6%) paid back over 72 months would cost $5,797 in interest.
Of course, even small changes in your rate impact how much total interest amount you pay overall. The total interest amount on a $30,000, 72-month loan at 5% is $4,787—a savings of more than $1,000 versus the same loan at 6%.
So it pays to shop around to find the best rate possible. While interest rates vary by lender, your rate depends on other factors, too, including:
- Federal Reserve interest rates: When the Fed keeps interest rates low, you pay less to borrow money.
- Your credit score: In general, the better your credit, the lower your interest rate will be.
- Your debt-to-income ratio (DTI): Your DTI shows how much of your gross monthly income goes toward paying your monthly debts. The lower your DTI, the lower your interest rate will be.
- Loan type: Loans for used cars have higher rates than those for new cars (because used cars have a lower resale value).
- The loan term: Longer loan terms usually have higher interest rates.
So what's a good APR for a car loan? The best way to answer that is to look at averages. Here are the average new and used car loan rates by credit score, according to Experian's Q2 2022 State of the Automotive Finance Market report:
Average New Car Loan Rates by Credit Score Credit Score Tier Credit Score Range Average New Car Rate Deep Subprime 300 - 500 13.42% Subprime 501 - 600 10.79% Near Prime 601 - 660 8.12% Prime 661 - 780 5.82% Super Prime 781 - 850 4.75% In general, a "good" rate is one that's equal to or, ideally, less than the average for your credit score. Here's a look at what those averages would cost over the life of a five-year, $30,000 loan:
What $30,000 Loans Cost Over 5 Years Credit Score Range Total Interest 300 - 500 $11,343.57 501 - 600 $8,948.11 601 - 660 $6,600.97 661 - 780 $4,648.59 781 - 850 $3,762.44 How Can I Calculate My Car Payment?
Our loan calculator shows how much a loan will cost you each month and how much interest you will pay overall. It can be helpful to use the calculator to try out different scenarios to find a loan that fits your monthly budget—and the amount of total interest you're willing to pay.
The best way to get a lower auto loan interest rate is to improve your credit score. If you have a low credit score, consider holding off on a car purchase (if possible) until you can improve your score.
To calculate your monthly car loan payment by hand, divide the total loan and interest amount by the loan term (the number of months you have to repay the loan). For example, the total interest on a $30,000, 60-month loan at 4% would be $3,150. So, your monthly payment would be $552.50 ($30,000 + $3,150 ÷ 60 = $552.50).
If you took a three-month payment freeze on a loan due to a COVID-19-related financial hardship, your subsequent repayments could be slightly higher to compensate.
The longer you take to repay a loan, the more interest you'll pay overall—and you'll likely have a higher interest rate, as well. Make a down payment, if possible, and aim for the shortest loan term possible with a monthly payment you can still afford. And keep in mind that a car comes with expenses beyond the loan payment. Be sure you'll have money left over to pay for car insurance, gas, parking, maintenance, and the like.
Is a 72-Month Car Loan a Good Idea?
Car loans often have variable interest rates, so in a rising rate environment, a shorter loan could be a better idea. While you may have slightly lower monthly payments than a 60-month loan, you will also end up paying more interest over the life of the loan. Because cars depreciate with time, a longer loan can also lead you to become "upside-down," where your car is worth less than the outstanding balance on the loan.
Can You Negotiate the APR for a Car Loan?
This will depend on who the lender is and how creditworthy you are. Car dealers that originate auto loans may have more leeway to work with the interest rate in order to get the deal done. Moreover, lenders are not usually required to offer you their best interest rate available, so negotiating could save you hundreds or thousands of dollars over the life of the loan.
Why Do Dealers Often Want You to Finance?
Car dealers make money from lending money to buyers, which is one reason they are interested in having you finance your car instead of paying cash. This can come in the form of interest paid on the loan as well as commissions or origination fees.
The Bottom Line
You can use an auto loan interest calculator to help you better understand how much you will pay in monthly payments in total interest for various interest rates on a certain size loans. These tools can also help you compare interest rates on the same loan, so you can clearly understand what you can save with a lower interest rate.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in oureditorial policy.
Experian. "Finance Market Report Q4 2022," Page 28.
Consumer Financial Protection Board. "Can I Negotiate the Interest Rate on an Auto Loan with the Dealer?"
Wall Street Journal. "Car Dealerships Don’t Want Your Cash—They Want to Give You a Loan."
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As a financial expert with a deep understanding of auto loans and financing, I'd like to delve into the concepts discussed in the article about the best auto loans. My expertise in the financial domain allows me to provide insights into the key elements and considerations related to auto loans.
The article covers various aspects of auto loans, including the types of loans available, factors influencing loan payments, the importance of credit scores, and the impact of interest rates on the overall cost of a car. Let's break down the concepts mentioned in the article:
-
Types of Auto Loans:
- The article discusses different categories of auto loans, such as new car loans, used car loans, auto refinance loans, and loans for buyers with bad or fair credit.
-
Factors Influencing Loan Payments:
- Loan payments are influenced by several factors, including the price of the car, whether it's new or used, the down payment, the loan term, and the borrower's credit score.
-
Auto Loan Interest Calculator:
- The article introduces the use of an auto loan interest calculator to estimate monthly payments and the total interest paid over the life of the loan. It emphasizes the importance of being prepared with this information before visiting a car dealership.
-
Interest Calculation Formula:
- The article provides a formula for calculating monthly car loan interest, involving the interest rate, loan balance, and the number of months.
-
Determining a Good APR:
- It explains how interest rates significantly impact the total cost of a car and suggests that a lower APR can result in substantial savings. Factors affecting APR include credit score, debt-to-income ratio, loan type, and loan term.
-
Average Loan Rates by Credit Score:
- The article presents average new car loan rates categorized by credit score ranges, helping readers understand what constitutes a "good" rate based on their credit score.
-
Calculating Car Payments:
- The article advises on using a loan calculator to determine monthly payments and total interest. It also mentions the impact of a payment freeze due to financial hardships.
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Longer Loan Terms and Depreciation:
- It highlights the potential downsides of longer loan terms, such as higher overall interest payments and the risk of owing more on the car than its value due to depreciation.
-
Negotiating APR:
- The article discusses the possibility of negotiating the APR for a car loan, depending on the lender and the borrower's creditworthiness. It mentions that car dealers may have flexibility in setting interest rates.
-
Dealers and Financing:
- Explains that car dealers may prefer financing over cash payments, as they can earn money through interest, commissions, or origination fees.
In conclusion, the article provides valuable information for individuals looking to secure an auto loan, covering everything from interest rate calculations to the importance of credit scores. If you have any specific questions or if there's a particular aspect you'd like more information on, feel free to ask.
