What you actually finance
The amount financed is rarely the sticker price. Start with the negotiated price, subtract any manufacturer rebate, your down payment and trade-in value, add anything still owed on the trade-in, then add sales tax and fees if you roll them into the loan. Taxes and fees are commonly financed, which is why the amount borrowed can exceed the price you negotiated.
Most states calculate sales tax on the price after the trade-in credit, so a trade-in reduces both the principal and the tax. A $35,000 car with a $10,000 trade-in in a 7% tax state is taxed on $25,000 — saving $700 relative to being taxed on the full price. Manufacturer rebates usually do not reduce the taxable price; they are treated as a payment toward it.
| Step | Amount | Running total |
|---|---|---|
| Negotiated price | $35,000 | $35,000 |
| Sales tax on $25,000 (price less trade-in) | + $1,750 | $36,750 |
| Title, registration and dealer fees | + $500 | $37,250 |
| Trade-in value | − $10,000 | $27,250 |
| Down payment | − $5,000 | $22,250 |
| Amount financed | $22,250 |
Sources: Consumer Financial Protection Bureau: How do I compare auto loan offers?
How the term changes the payment and the cost
Stretching the term lowers the payment and raises the total cost, and the trade is steeper than most buyers expect. The dealer's question is always about the monthly payment; the answer that matters is the total, and the calculator shows both.
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 36 months | $926.31 | $3,347 | $33,347 |
| 48 months | $718.39 | $4,483 | $34,483 |
| 60 months | $594.04 | $5,642 | $35,642 |
| 72 months | $511.47 | $6,826 | $36,826 |
| 84 months | $452.78 | $8,034 | $38,034 |
Loan term and negative equity
Long auto loans of 72 or 84 months lower the monthly payment but create a specific hazard: cars depreciate faster than long loans amortize. New vehicles typically lose 20% or more of their value in the first year, so for a substantial part of a long loan you can owe more than the car is worth. That is negative equity, and it becomes a real problem if the car is totaled or you need to sell.
A practical guideline is to keep the term at 60 months or shorter and to put down enough that you are never significantly underwater. If you can only afford a car at 84 months, that is useful evidence the car is too expensive rather than that the term should be longer.
| After | Estimated car value | Loan balance | Equity |
|---|---|---|---|
| Year 1 | $28,000 | $29,662 | −$1,662 |
| Year 2 | $23,800 | $24,527 | −$727 |
| Year 3 | $20,230 | $19,022 | +$1,208 |
| Year 4 | $17,196 | $13,118 | +$4,077 |
| Year 5 | $14,616 | $6,788 | +$7,828 |
| Year 6 | $12,424 | $0 | +$12,424 |
Dealer financing versus outside financing
Getting pre-approved by a bank or credit union before visiting a dealer gives you a benchmark rate and separates the price negotiation from the financing negotiation. Dealers can sometimes beat that rate, particularly with manufacturer-subsidized promotional financing, and you should let them try.
Watch for two common patterns. First, a choice between low promotional financing and a cash rebate — run both numbers, because the rebate often wins on a shorter term. Second, negotiation framed around the monthly payment rather than the price; a lower payment achieved by extending the term costs more overall. Negotiate the vehicle price first, then the financing.
| Term | Total cost at 0% APR | Total cost with rebate | Winner | By |
|---|---|---|---|---|
| 36 months | $30,000 | $28,979 | Rebate | $1,021 |
| 48 months | $30,000 | $29,815 | Rebate | $185 |
| 60 months | $30,000 | $30,665 | 0% APR | $665 |
What rate to expect
Auto loan rates track credit tier more than anything else, and the spread between tiers is wide. The figures below are typical of recent industry averages and are illustrative only — your quotes will differ by lender, term, and vehicle age. Because the spread is so large, a few months spent improving a score, or a larger down payment, can be worth thousands.
| Credit tier | New car | Used car |
|---|---|---|
| Super prime (781–850) | about 5 – 6% | about 7 – 8% |
| Prime (661–780) | about 6 – 7% | about 9 – 10% |
| Near prime (601–660) | about 9 – 10% | about 13 – 14% |
| Subprime (501–600) | about 12 – 13% | about 18 – 19% |
| Deep subprime (300–500) | about 15 – 16% | about 21 – 22% |
Total cost of ownership
The loan payment is one line in a larger budget. Insurance, fuel, maintenance, registration, and depreciation typically add several hundred dollars a month. Insurance in particular varies widely by vehicle model, and lenders require comprehensive and collision coverage while you finance, which costs more than the liability-only policies some owners carry on paid-off cars. Get an insurance quote for the specific vehicle before committing.