Auto Loan Calculator

Q: How much car payment can I afford?

A common guideline is to keep total vehicle costs (payment, insurance, fuel, maintenance) under 15%-20% of take-home pay, with the loan payment itself around 10% or less. The 20/4/10 rule suggests 20% down, a maximum 4-year term, and total car costs under 10% of gross income.

Q: Is sales tax financed in a car loan?

Usually yes — tax, title, and fees are commonly rolled into the amount financed unless you pay them upfront. In most states, sales tax applies to the price after the trade-in credit, which this calculator assumes.

Q: What loan term is best for a car?

Shorter is cheaper: 72- and 84-month loans lower the payment but cost far more interest and keep you underwater (owing more than the car's value) longer. If you need 72+ months to afford the payment, the car is likely beyond budget.

Q: What happens if I owe more than my trade-in is worth?

That negative equity is added to the new loan's amount financed, so the new loan starts already exceeding the new car's value. Breaking this cycle usually requires a larger down payment or waiting until the old loan balance drops below the trade-in value.

Q: Should I get pre-approved before visiting the dealership?

Yes. A pre-approval from a bank or credit union provides a real interest rate to compare against dealer financing, and negotiating the loan separately from the vehicle price typically produces a better overall deal.

Your real monthly car payment — with sales tax, trade-in credit, down payment, and dealer fees included, not just the sticker price.

Written by the Calculator Index team · Formula: standard installment-loan amortization · Last reviewed August 2026

Monthly payment

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Amount financed

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Sales tax

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Total interest

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Total cost of vehicle

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How the amount financed is built

Amount financed = Price − Trade-in + Amount owed on trade + Sales tax + Fees − Down payment
Sales tax = (Price − Trade-in) × tax rate (most states credit the trade-in)

Worked example

$35,000 car · $5,000 down · 6.5% tax · $500 fees · 7% APR for 60 months

Tax: 35,000 × 6.5% = $2,275 → financed: 35,000 + 2,275 + 500 − 5,000 = $32,775

Payment: $649/mo · total interest ≈ $6,166

The 20/4/10 rule of thumb

A useful discipline for car buying: put 20% down, finance for no more than 4 years, and keep total car expenses under 10% of gross income. Few buyers hit all three, but each one you meet reduces the odds of being "underwater" — owing more than the car is worth as it depreciates. Watch the long-term trap: at 7%, moving from 60 to 84 months on the example above drops the payment to $495 but raises total interest from $6,200 to about $8,800. Work backward from a payment that fits your budget with the car affordability calculator, or compare leasing with the lease calculator.

Common mistakes when financing a car

Negotiating the payment instead of the price. Dealers can hit almost any monthly payment target by stretching the term — that doesn't mean you're getting a good deal. Always negotiate the out-the-door price first, then let the payment fall out of that.
Rolling negative equity into the new loan. If you owe more on your trade-in than it's worth, that gap gets added to your new loan's amount financed — meaning you start the new loan already underwater. Check "owed on trade-in" carefully.
Ignoring the total cost of a longer term. A lower monthly payment from stretching to 72 or 84 months can look attractive, but it usually means paying thousands more in total interest and staying underwater on the loan for years longer.
Skipping add-ons in the fee estimate. Extended warranties, gap insurance, and dealer add-ons are often bundled into "fees" at signing — read the itemized figures before assuming this calculator's fee estimate matches the final paperwork.

Frequently asked questions

How much car payment can I afford?

Keep the payment near 10% of take-home pay and all car costs under 15–20%. The 20/4/10 rule adds 20% down and a 4-year maximum term.

Is sales tax financed in a car loan?

Commonly yes, along with title and fees — and most states charge tax on the price after trade-in credit, as assumed here.

What loan term is best for a car?

The shortest you can comfortably afford. 72–84 month loans cost far more interest and extend the underwater period.

What happens if I owe more than my trade-in is worth?

That negative equity gets added to your new loan's amount financed, meaning you start the new loan already owing more than the new car is worth — a cycle that's hard to break without a larger down payment or waiting for the old loan balance to drop.

Should I get pre-approved before visiting the dealership?

Yes — a pre-approval from a bank or credit union gives you a real interest rate to compare against dealer financing, and shopping the loan separately from the car price usually produces a better overall deal than negotiating both at once.

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Note: Tax treatment of trade-ins varies by state; fees vary by dealer. Not financial advice. Last reviewed: July 2026.