How to Calculate Your Auto Loan Payment

Loan Payment Formula

The standard amortization formula for calculating a monthly auto loan payment is: M = P × [r(1+r)^n] / [(1+r)^n - 1].

In this formula, M is the monthly payment, P is the loan principal (the amount you borrow), r is the monthly interest rate (annual rate divided by 12), and n is the number of monthly payments (loan term in months). This formula assumes a fixed interest rate and equal monthly payments, which is typical for auto loans.

Sources: Sunward

Step-by-Step Example

Let’s walk through an example. Suppose you borrow $25,000 for a car at an annual interest rate of 6.70% for a 5-year term. First, convert the annual rate to a monthly rate: 6.70% / 12 = 0.5583% per month (or 0.005583 as a decimal). The number of payments is 5 years × 12 months = 60.

Now plug the numbers into the formula: M = 25000 × [0.005583(1+0.005583)^60] / [(1+0.005583)^60 - 1]. Calculating this gives a monthly payment of approximately $412.86. The total interest paid over the life of the loan would be about $3,771.55, bringing the total amount paid to $28,771.55.

• Loan amount (P): $25,000
• Annual interest rate: 6.70%
• Monthly rate (r): 0.005583
• Number of payments (n): 60
• Monthly payment (M): $412.86
• Total interest: $3,771.55

Sources: Community First Credit Union

Spreadsheet Usage

If you prefer to use a spreadsheet, you can use Excel's PMT function. The syntax is =PMT(rate, nper, pv), where rate is the monthly interest rate, nper is the total number of payments, and pv is the present value or loan amount (entered as a negative number because it's money you owe).

For example, if your annual interest rate is in cell B5, the term in years in cell B6, and the loan amount in cell B8, the formula would be =PMT(B5/12, B6*12, -B8). This returns the monthly payment. You can then multiply by the number of payments to find the total cost and subtract the principal to find total interest.

• In your spreadsheet, enter the annual interest rate, term in years, and loan amount in separate cells.
• Use =PMT(B5/12, B6*12, -B8) to get the monthly payment.
• Multiply the monthly payment by the total number of payments to get the total of all payments.
• Subtract the loan principal from that total to find total interest.

Sources: Community First Credit Union

Down Payment Impact

A larger down payment lowers the total cost of your auto loan by reducing the amount you need to finance. This means lower monthly payments and less interest paid over time. Conversely, a smaller down payment means you finance more, leading to higher monthly payments and more total interest over the life of the loan.

Financial institutions often recommend a down payment of 15% to 20% of the car’s total cost. This is a common guideline, though the right amount depends on your budget and loan terms.

• A larger down payment reduces the loan principal.
• Lower principal leads to lower monthly payments.
• Less money borrowed means less interest accrued over the loan term.
• A smaller down payment increases the financed amount and total interest.
• A 15% to 20% down payment is often suggested.

Sources: Consumer Financial Protection Bureau, Bankrate, Community First Credit Union

Trade-In Impact

A higher trade-in value also lowers the total cost of your auto loan by reducing the amount you need to finance. If you have a vehicle to trade in, its value (minus any remaining loan balance) is typically deducted from the purchase price, lowering the principal of your new loan.

This reduction works the same way as a larger down payment: it decreases monthly payments and total interest because you’re borrowing less.

Sources: Consumer Financial Protection Bureau, Edmunds

Total Cost Breakdown

Beyond the car price, you may also incur sales tax, document fees, title and registration fees, advertising fees, destination charges, and insurance. These can add to the upfront amount you pay or be rolled into the loan.

• Total cost = total of payments + down payment + trade-in value.
• Remember to include taxes and fees.
• Longer loan terms reduce monthly payments but increase total interest paid.
• Example: $28,000 at 7% APR over 48 months yields about $4,218 interest; over 72 months, interest rises to about $6,370.

Sources: Consumer Financial Protection Bureau, Calculator.net, Sunward

Limitations

The standard amortization formula assumes a fixed interest rate and equal monthly payments. Most auto loans are simple-interest loans, so the actual interest accrual may differ slightly from the formula's result due to the way interest is calculated on the daily balance.

Interest rates and fees vary by lender and state. The APR figures you see are averages and may not reflect your specific situation. Always check with your lender for exact numbers.

• Formula assumes fixed rate and equal payments.
• Actual interest may vary if the loan uses simple interest.
• APRs in research are averages for Q1 2026, from Experian data, and may change.
• Always verify rates and fees with official sources.

Sources: Sunward, Calculator.net, NerdWallet