How the car payment is figured
First the amount financed is the price plus sales tax, minus your down payment and trade-in:
financed = price × (1 + tax%) − down − trade-in
Then the same amortizing-loan formula used for any installment loan gives the monthly payment:
M = P × i × (1+i)n ÷ ( (1+i)n − 1 )
Where P is the amount financed, i is the monthly rate (APR ÷ 12) and n is the number of months.
Worked example
A $32,000 car, 6% sales tax, $4,000 down, no trade-in, at 7.5% APR over 60 months:
Taxed price: 32,000 × 1.06 = $33,920.
Financed: 33,920 − 4,000 = $29,920.
Monthly payment: ≈ $599.61.
Total interest: ≈ $6,057 over five years.
Cutting the cost of a car loan
A larger down payment and a shorter term both reduce total interest. Stretching to a 72- or 84-month loan lowers the monthly payment but adds a lot of interest and raises the risk of owing more than the car is worth. Always compare APRs from a bank or credit union against the dealer's offer.
Note: tax rules vary by state — some tax the trade-in difference rather than the full price. This tool taxes the full vehicle price; adjust the rate if your state taxes the post-trade-in amount.