What goes into a car payment
Your monthly payment depends on the amount financed, the interest rate and the term. The amount financed is usually:
Price − down payment − trade-in + owed on trade-in + sales tax + fees
Sales tax here is charged on the price minus the trade-in value, which is how many states handle it. Check your state's rules, since some charge tax on the full price.
Worked example
A $30,000 car with $5,000 down, 6% sales tax ($1,800) and $500 in fees means financing $27,300. At 6.5% APR for 60 months, the payment is about $534 a month and you pay roughly $4,750 in interest. Stretching the same loan to 72 months lowers the payment but adds several hundred dollars more interest.
Tips for a better car loan
- Get pre-approved by a bank or credit union before visiting the dealer, so you know a fair rate.
- Negotiate the price first, then talk about financing and trade-in separately.
- Keep the term short. Cars lose value fast, and long loans can leave you owing more than the car is worth.
- Watch add-ons. Extended warranties and protection packages rolled into the loan add interest too.
Last reviewed October 2026.
Frequently asked questions
How long should a car loan be?
Shorter loans cost less in total. 72- and 84-month loans make the monthly payment smaller, but you pay more interest and are more likely to owe more than the car is worth for several years. Compare terms in the table to see the trade-off.
Is sales tax included in my car loan?
Often, yes. Many buyers roll the sales tax and fees into the loan. This calculator adds them to the amount financed. In many states the trade-in value is subtracted before tax is charged, which is how it is calculated here, but rules vary by state.
What if I owe money on my trade-in?
Enter the payoff amount in "Owed on trade-in". If you owe more than the car is worth, the difference (negative equity) is added to your new loan, which raises your payment and interest.
How much should I put down on a car?
A larger down payment lowers the amount you borrow, your monthly payment and the interest you pay. It also helps you avoid owing more than the car is worth early on. Many buyers aim for a meaningful down payment, especially on a new car that loses value quickly.
Should I take 0% financing or a cash rebate?
Compare both. Enter 0% as the rate for the dealer offer, then enter your bank or credit union rate with the rebate subtracted from the price. Whichever gives the lower total cost is the better deal.