How a car loan is built
The payment itself uses the same fixed-rate amortization formula as any installment loan. What makes car loans different is everything that gets added to or taken off the sticker price before the loan starts: sales tax, title and registration, dealer documentation fees, your cash down payment, a trade-in and any rebate. Getting the amount financed right matters more than the formula, so the calculator shows that number on its own line.
The formulas
Taxable price = price − trade-in (or price, if your state gives no trade-in credit) Sales tax = taxable price × tax rate Amount financed = price + tax + fees − down − trade-in + amount owed − rebate Monthly payment = L × r / (1 − (1 + r)^−n), r = APR / 12, n = months
If you choose not to finance taxes and fees, they move from the loan to the amount due at signing.
Worked example
A $35,000 car with $5,000 down and an $8,000 trade-in that still has $3,000 owed on it. Sales tax is 6% and fees are $800.
Taxable price = 35,000 − 8,000 = $27,000, so tax = $1,620. Amount financed = 35,000 + 1,620 + 800 − 5,000 − 8,000 + 3,000 = $27,420.
At 6.5% for 60 months, r = 0.065 / 12 = 0.0054167 and the payment is 27,420 × 0.0054167 / (1 − 1.0054167^−60) = $536.50. Sixty payments total $32,190.23, of which $4,770.23 is interest.
Assumptions and limitations
- The rate is fixed and payments start one month after purchase. Dealer-arranged loans sometimes include add-ons (GAP, service contracts) that you should enter in fees if they are financed.
- Sales tax rules, local add-on rates and fee caps differ by state and county. Enter your combined state and local rate.
- "Total cost of the car" counts your down payment, the trade-in value you gave up, payments and any fees paid at signing.
- Results are rounded to the cent; the lender's Truth in Lending disclosure is the final figure.
Sources: Consumer Financial Protection Bureau, Auto loans; Federal Trade Commission, Financing or Leasing a Car.
Frequently asked questions
Does my trade-in reduce the sales tax?
In most U.S. states, yes: tax is charged on the price minus the trade-in allowance. A few states tax the full price instead, or cap the credit. Untick "Trade-in reduces taxable price" if that applies to you, and check your state revenue department for the current rule.
What if I owe more on my trade-in than it is worth?
That is negative equity. Enter the payoff amount in "Amount owed on trade-in"; the dealer adds it to the new loan, so you pay interest on the old car's balance too. The calculator shows it as part of the amount financed.
Should I finance the fees and taxes?
Rolling tax, title and registration into the loan lowers what you pay at signing but adds interest on those amounts for the whole term. On a $2,000 roll-in at 6.5% for 60 months, that is about $350 of extra interest.
Is a longer loan term better?
A 72- or 84-month term lowers the monthly payment but raises total interest, and because cars lose value quickly you are more likely to owe more than the car is worth for the first few years. Compare the "Total interest" figure for 48, 60 and 72 months before choosing.
How does a rebate affect the loan?
A cash rebate applied at purchase reduces the amount you finance. In many states sales tax is still charged on the price before the rebate, which is how this calculator treats it.
CalcNest results are estimates based on the inputs and assumptions above, not financial, tax or lending advice. A lender's official Loan Estimate or your account statement is the final word.