What goes into a car payment
The amount you borrow is the car's price plus sales tax and fees, minus your down payment and trade-in. Your monthly payment depends on that amount, the interest rate (APR) and the number of months.
- Shorter loans (36 to 48 months) cost more each month but much less in total interest.
- Longer loans (72 to 84 months) lower the payment, but you pay more interest and are more likely to owe more than the car is worth.
- Sales tax – most states tax the price minus your trade-in value, which is one reason trading in can save money.
Tips for a better deal
- Get pre-approved by a bank or credit union before visiting the dealer, so you can compare their rate.
- Negotiate the price of the car first, then talk about financing.
- Keep the total of all car costs (payment, insurance, fuel) to a comfortable share of your take-home pay.
Frequently asked questions
What is a good APR for a car loan?
It depends on your credit score, whether the car is new or used and current rates. Borrowers with excellent credit get the lowest rates; compare offers from several lenders.
Is a bigger down payment better?
A larger down payment lowers the loan amount, the monthly payment and the total interest, and reduces the chance of owing more than the car is worth.
Should I lease instead?
Leasing usually has lower monthly payments but you do not own the car at the end. Compare both with our car lease calculator.