Car Loan Calculator

How to use this calculator

1. Enter the vehicle price you have negotiated — ideally the out-the-door price.
2. Enter your cash down payment and any trade-in allowance separately. They are not the same thing for tax purposes.
3. Enter the sales tax rate for where the car will be registered, the interest rate, and the term.

How the calculation works

Car finance differs from a plain loan in one respect that changes the answer: the order in which tax, trade-in and deposit are applied.

1. The trade-in reduces the taxable amount. In most US states, sales tax is charged on the price after the trade-in allowance is deducted.
2. The tax is added to the amount financed. Almost nobody pays the sales tax in cash at signing, so it is rolled into the loan — and you pay interest on it for the whole term.
3. Then the deposit and trade-in come off. What remains is the amount financed.

taxable  = price − trade-in
tax      = taxable × rate
financed = price + tax − deposit − trade-in

The payment on that financed amount uses the standard amortisation formula.

A worked example

A $32,000 car, $3,000 cash down, a $5,000 trade-in, 6% sales tax, 7.9% APR over 5 years.

The taxable amount is $32,000 − $5,000 = $27,000, so the sales tax is $1,620. Without the trade-in deduction the tax would have been $1,920, so the trade-in saved $300 in tax on top of its face value.

The amount financed is $32,000 + $1,620 − $3,000 − $5,000 = $25,620.

At 7.9% over 60 months that gives a payment of $518.26.

Amount financed	$25,620.00
Monthly payment	$518.26
Total interest	$5,475.36
Total cost of the car	$39,095.36

A $32,000 car costs $39,095 once tax and interest are counted — 22% more than the sticker price, before insurance, fuel or a single service.

Common mistakes to avoid

Negotiating the monthly payment instead of the price. This is the oldest technique in car sales, and it works. Any payment can be reached by extending the term, so agreeing to “$450 a month” tells you nothing about what you are paying. Negotiate the out-the-door price, then discuss finance separately.

Assuming 0% finance is free money. Zero percent offers are frequently offered instead of a cash rebate. If the choice is 0% or $2,500 off, taking the rebate and financing at 6% may well cost less overall. Run both.

Stretching to 72 or 84 months. The payment falls and the total interest climbs, but the real problem is specific to cars: they depreciate faster than a long loan pays down. On a seven-year loan you can spend three or four years owing more than the car is worth, which becomes a serious problem if it is written off or you need to sell.

Forgetting the fees. Documentation fees, registration, title, and dealer add-ons routinely add several hundred to a couple of thousand dollars, and they are usually financed too. Ask for the out-the-door figure and enter that as the price.

Treating the payment as the cost of ownership. Insurance, fuel, tyres, servicing and depreciation typically cost as much again as the finance. A common guideline is to keep all car costs under 15 to 20 percent of take-home pay — and insurance in particular varies enormously between models with similar prices.

When this calculator is not the right tool

A few states tax the full purchase price regardless of trade-in. If yours is one of them, enter the trade-in as a cash down payment instead: that models the correct tax treatment.

Leasing works differently again, since you are paying for depreciation over the lease term plus a rent charge, not amortising the full value. And for a private-party purchase there is usually no dealer trade-in at all, though tax is often still due at registration.

For a loan with no sales tax and no trade-in, the general loan calculator is simpler.