Car Loan Interest Calculator
Estimate your monthly car payments and the total interest you'll pay over the life of your loan.
Loan Details
Your Loan Summary
Monthly Payment: $566.14
Total Interest Paid: $3968.22
Total Cost of Loan: $33968.22
This calculation assumes monthly compounding and payments.
Understanding Your Car Loan
Buying a car is a significant financial decision, and understanding the loan's interest is crucial. A car loan is typically an amortizing loan, meaning each monthly payment consists of both principal (the amount you borrowed) and interest. Early in the loan term, a larger portion of your payment goes towards interest, and as the loan matures, more goes towards the principal.
Key Terms Explained:
- Loan Amount (Principal): The total amount of money you borrow to purchase the car.
- Annual Interest Rate (APR): The cost of borrowing money, expressed as a yearly percentage. A lower APR means less interest paid over the life of the loan.
- Loan Term (Years): The duration over which you agree to repay the loan, typically in years. Longer terms often mean lower monthly payments but result in more total interest paid.
- Monthly Payment: The fixed amount you pay each month until the loan is fully repaid.
- Total Interest Paid: The cumulative amount of interest you will have paid by the end of the loan term.
How Interest is Calculated
The calculator uses the standard loan amortization formula. This formula takes into account the principal, interest rate, and loan term to determine your fixed monthly payment. The total interest paid is simply the total of all your monthly payments minus the original loan amount.
M = P [ i(1 + i)ⁿ ] / [ (1 + i)ⁿ – 1]
- M = Monthly Payment
- P = Principal Loan Amount
- i = Monthly Interest Rate (Annual Rate / 12)
- n = Total Number of Payments (Loan Term in Years * 12)
Tips for Managing Your Car Loan:
Shop for Rates
Don't just accept the dealer's financing. Compare offers from banks, credit unions, and online lenders before you buy.
Consider a Shorter Term
While monthly payments will be higher, a shorter loan term significantly reduces the total interest paid over the life of the loan.
Make a Larger Down Payment
A bigger down payment reduces the amount you need to borrow, which in turn reduces your monthly payments and total interest.
Pay More Than the Minimum
If possible, pay extra on your principal each month. Even small additional payments can save you a substantial amount in interest over time.
Be an Informed Buyer: Understanding your car loan's mechanics empowers you to make smarter financial decisions and save money.