How much should I put down on a car?

Most financial advisors recommend at least 20% down on a new car and 10% on a used car. A larger down payment reduces your loan amount, lowers your monthly payment, and helps you avoid being underwater on the loan — where you owe more than the car is worth.

Are interest rates lower for new cars vs used cars?

Yes. New car loan rates average about 6.84% while used car rates average around 8.2% as of Q1 2026, according to Experian data. Lenders see used cars as higher risk because they depreciate faster and have less predictable resale value.

What loan term should I choose for a car?

Stick to 48 or 60 months if you can afford the payment. Loans stretching to 72 or 84 months look appealing because of the lower monthly bill, but you pay thousands more in interest and risk owing more than the car is worth for years. A 60-month loan at 6.84% on $25,000 costs $4,609 in interest; a 72-month loan costs $5,495 — nearly $900 more.

Do I need GAP insurance on my auto loan?

GAP insurance covers the difference between what you owe and what the car is worth if it is totaled. If you put less than 20% down or have a loan term longer than 60 months, GAP insurance is worth considering. Once your loan balance drops below the car value, you can cancel it.

When should I refinance my auto loan?

Refinancing makes sense when your credit score has improved since you took the original loan, market rates have dropped, or you got a bad rate at the dealership. Even a 1-2% rate reduction on a $20,000 balance can save $500-$1,000 over the remaining term. Wait at least 60-90 days after the original loan before refinancing.

Does getting pre-approved hurt my credit score?

A single pre-approval causes a hard inquiry that may drop your score by 5-10 points. But here is the good part: credit scoring models like FICO and VantageScore treat multiple auto loan inquiries within a 14-day window as one inquiry. So you can shop five lenders in two weeks and it counts the same as shopping one. Get all your quotes in a tight window.

Can I negotiate the interest rate at a dealership?

Absolutely. Dealers get a rate from a lender and often mark it up by 1-2 percentage points as profit. If you walk in with a pre-approval letter from your bank or credit union, the dealer has to beat that rate or lose the financing entirely. This is the single best negotiating tool you can bring to a dealership.

Is it better to pay cash for a car or finance it?

If you have the cash and it would not drain your emergency fund, paying cash saves you all interest costs. On a $25,000 loan at 6.84% for 60 months, that is $4,609 in interest you skip entirely. But if paying cash means emptying your savings, financing at a reasonable rate and keeping that cash cushion is the smarter move. Life has a way of throwing a $3,000 surprise at you the month after you buy a car.

Auto Loan Calculator — Car Payment Estimator

Find out your monthly car payment and total interest cost. Works for new and used vehicles — adjust the price, down payment, rate, and term to fit your budget.

Loan Amount	$25,000
Total Payment	$29,588
Total Interest	$4,588

How to Use This Auto Loan Calculator

Start with the vehicle price. Slide it to the sticker price you are looking at, or type an exact number if you already have a quote from the dealer. Next, set your down payment — the cash you plan to hand over at signing. If you have a trade-in, enter that value separately. The calculator subtracts both from the vehicle price to get your actual loan amount.

Then pick your interest rate. New car loans average 6.84% and used car loans average 8.2% as of Q1 2026 (Experian Automotive), but your rate depends on your credit score, lender, and whether you shopped around. Finally, choose a loan term — 36, 48, 60, or 72 months. The payment updates the instant you move any slider. No buttons to click. Try a few combinations to find the monthly number that works for your budget without stretching the term so long that you drown in interest.

How Auto Loans Work

An auto loan is a secured installment loan. The car itself is the collateral. Miss enough payments and the lender repossesses it. Simple as that.

New vs Used Rates

New cars get better rates. Experian's Q1 2026 State of the Automotive Finance Market report puts the average new car rate at 6.84% and the average used car rate at 8.2%. The gap exists because used vehicles depreciate faster and are harder for lenders to value precisely. A three-year-old sedan with 45,000 miles carries more risk than a factory-fresh one with a full warranty. That said, a well-maintained certified pre-owned vehicle from a brand like Toyota or Honda often qualifies for rates closer to new car territory — sometimes within half a percentage point.

Amortization: Where Your Payment Actually Goes

Just like a mortgage, auto loans are front-loaded with interest. Your first payment on a $30,000 loan at 6.84% sends about $171 to interest and only $422 to principal. That ratio flips over time, but early on, most of your money is feeding the lender's profit — not paying down the car. This is why making one or two extra payments in the first year saves more than making extra payments in the last year.

Dealer Financing vs Bank vs Credit Union

Dealer financing is almost always worse than what you can get on your own. Dealers act as middlemen. They get a wholesale rate from a lender — say 5.9% — then mark it up to 7.4% and pocket the spread. That 1.5% markup is pure dealer profit and it is perfectly legal. Banks offer competitive rates but tend to be stricter on approval. Credit unions are the sweet spot for most buyers: they are member-owned, nonprofit, and their auto loan rates are often 1-2% below banks. The National Credit Union Administration reports that the average credit union new car rate was 5.78% in Q1 2026, a full percentage point under the national bank average.

The Auto Loan Payment Formula

Same formula used for any fixed-rate installment loan:

M = P × [ r(1 + r)ⁿ ] / [ (1 + r)ⁿ − 1 ]

M = monthly payment
P = loan principal (vehicle price minus down payment minus trade-in)
r = monthly interest rate (annual rate ÷ 12)
n = total number of payments (term in years × 12)

Example: $25,000 loan, 6.84% rate, 60 months. Monthly rate r = 0.0684 / 12 = 0.0057. Payments n = 60. Plug in and you get M = $493. That is principal and interest — no taxes, no fees. The formula assumes a fixed rate, which is standard for auto loans. Variable-rate auto loans exist but are rare.

3 Real-World Examples

Example 1: New Honda CR-V — $30,000

Vehicle price: $30,000. Down payment: $6,000 (20%). Trade-in: none. Loan amount: $24,000. Rate: 6.84% for 60 months. Monthly payment: $473. Total interest paid over five years: $4,380. Total cost of the loan: $28,380.

That $4,380 in interest is the real cost of borrowing. The CR-V will be worth roughly $16,000-$18,000 after five years based on Kelley Blue Book depreciation curves for compact SUVs. You will have paid it off completely, and the remaining value is yours. This is the cleanest auto loan scenario: reasonable term, decent rate, solid down payment.

Example 2: Used Toyota Camry — $18,000

Vehicle price: $18,000 (2023 model, 32,000 miles). Down payment: $3,000 (17%). Trade-in: none. Loan amount: $15,000. Rate: 8.2% for 48 months. Monthly payment: $367. Total interest paid: $2,616. Total cost: $17,616.

The rate is higher because it is used, but the shorter 48-month term keeps total interest under control. A Camry with 32,000 miles has a lot of life left — Toyota sedans regularly hit 200,000+ miles with basic maintenance. The math works out well here. If you stretched this to 72 months to get a lower payment ($265/month), total interest jumps to $4,076. That extra $1,460 buys nothing except a more comfortable monthly number. Not worth it.

Example 3: New Truck With a Trade-In — $45,000

Vehicle price: $45,000. Down payment: $5,000. Trade-in value: $8,000. Loan amount: $32,000. Rate: 6.84% for 60 months. Monthly payment: $631. Total interest paid: $5,840. Total cost: $37,840.

The trade-in knocks $8,000 off the loan, which saves about $1,560 in interest compared to financing the full $40,000. Here is the trap, though. The 84-month loan is a trap. If you ran this same truck at 72 months instead of 60, the payment drops to $548 — only $83 less per month — but interest balloons to $7,436. At 84 months, you pay $8,974 in interest and you are underwater on the truck for the first three years. The truck depreciates faster than you pay it down. A lot of people end up stuck: they want to sell or trade after three years but owe $4,000 more than the truck is worth.

5 Ways to Get a Better Auto Loan

Get pre-approved before you visit the dealer. Walk in with a rate in hand from your bank or credit union. The dealer now has to beat your number or lose the financing revenue entirely. This shifts the power dynamic immediately. Pre-approval also tells you exactly how much you can borrow, so you do not get talked into a $40,000 truck when your budget supports $28,000.
Check credit unions first. Credit unions consistently offer the lowest auto loan rates. The average credit union new car rate in Q1 2026 is 5.78%, per NCUA data. You usually need to be a member, but many credit unions let you join for a $5 savings deposit. Navy Federal, PenFed, and Alliant are the big names, but smaller local unions often beat them.
Negotiate the vehicle price, not the monthly payment. Dealers love to ask "what monthly payment are you looking for?" because they can hit any number by stretching the term to 72 or 84 months. That is a terrible deal disguised as an affordable one. Agree on the out-the-door price first. Then figure out the financing separately.
Choose the shortest term you can handle. A 48-month loan at 6.84% on $25,000 costs $3,050 in total interest. A 72-month loan at the same rate costs $5,495. That is an extra $2,445 for the privilege of paying $150 less per month. If you can stomach the higher payment, always go shorter.
Refinance after 12 months if your credit improved. A lot of people buy cars when their credit is not great — maybe a 640 score — and accept a high rate just to get the deal done. After a year of on-time payments, that score might be 690 or 700. Refinancing from 9.5% to 6.5% on a $20,000 balance saves roughly $1,800 over the remaining term. Check rates at your bank and two credit unions before pulling the trigger.

When I bought my 2021 Honda Civic in late 2022, I almost signed the dealer's financing paperwork without thinking. The F&I manager slid a sheet across the desk showing 7.9% for 72 months like it was the only option. I had a pre-approval from Navy Federal at 5.24% for 60 months in my back pocket but honestly almost forgot about it in the moment — the whole process moves fast and they count on that. I pulled up the letter on my phone and the manager suddenly "found" a 5.49% rate from one of their partner banks. Still worse than Navy Federal, but the point is they had room the entire time. I went with Navy Federal. The difference between 7.9% and 5.24% on that $22,000 loan was about $3,100 in total interest. That is real money.

Two years later I helped my sister buy a used 2020 Toyota RAV4. She had a 660 credit score and the first bank she tried quoted 10.1%. I dragged her to our local credit union — a tiny place called Allegacy that barely had a website — and they offered 7.3%. Not amazing, but nearly three points lower. After 14 months of on-time payments her score hit 710 and she refinanced through PenFed at 5.8%. Her monthly payment dropped $47 and she will save around $1,400 over the remaining term. The whole thing took maybe two hours of paperwork spread across a Saturday morning. She kept saying she "didn't know you could do that." Most people don't.