What will my car payment be for a particular car at a particular price?
If you are buying a car with a loan, you may wonder how much you’ll pay each month for that loan. It’s not quite as simple as dividing the loan amount by the number of months of the loan. That’s because there are finance charges included as well.
Sometimes, novice buyers are shocked to see in their purchase loan contract that the total amount that will have been paid by the end of the loan will be an amount considerably higher than expected — because the amount includes the total of all interest. All loan contracts are required by law to disclose this amount.
It depends on a number of things
The amount of your monthly car payment will depend on several factors in combination:
- The agreed-to price of the vehicle
- Any added costs for sales tax, dealer fees, add-on products such as an extended warranty, and official fees
- Any down payment
- Any manufacturer rebates or bonuses
- Any credit for a trade vehicle
- The term of the loan in months
- The interest rate (depends on lender and your credit score)
Therefore it’s impossible to simply compute car payment amount from knowing the price of a vehicle.
How to calculate your car payment
Let’s take an example and compute monthly payments using our unique Auto Loan Calculator.
Let’s assume the negotiated price of the vehicle is $25,000 and that an additional amount of $1500 is added for tax and fees. Also assume that we’ll make a $2500 down payment, have a trade-in vehicle worth $3000. Our loan will be for a 60 month term and with an interest rate of 5.5% APR.
Now let’s plug these numbers into our calculator :
Vehicle price = $25,000 + $1500 = $26,500
Down payment = $2500 (cash) + $3000 (trade credit) = $5500
Length of loan = 60 months
Interest rate = 5.5%
After clicking the “Calculate” button, we find that the monthly payment will be $401.12 and that the total cost at the end of 60 months will be $29,567.46, including total interest of $3067.46.
What if the payment is too high?
If the amount you calculate is too high or you feel it’s not affordable, you can do a number of things to reduce your payment.
- Negotiate a better price on the car, or buy a cheaper car
- Make a larger down payment
- Instead of trading your old vehicle, sell it yourself for more money and use the money as part of your down payment
- Stretch out your loan term to additional months. Your payment will go down but total interest will go up
- Shop for a lower interest rate. Interest rates vary widely between banks, credit unions, and finance companies
What if my calculated payment doesn’t agree with my dealer’s payment?
Since dealers use the same payment formula as our Auto Loan Calculator, if both you and the dealer use the same numbers, the payment should calculate exactly the same.
Therefore, if the calculation results are not the same, and the dealer’s numbers are higher, the dealer could be hiding some costs or fees that he hasn’t told you about, or he’s not giving you full credit for your trade-in, or he’s left out your down payment, or charging you a higher interest rate. Regardless, you should always challenge the dealer on this discrepancy and make sure you both are using the same figures and get the same payment results.