Car finance
How to Calculate Car Loan Payments
A car-buying guide to monthly finance payments, deposits, trade-ins, APR, and the hidden cost of stretching the term.
Car loan payments depend on the amount financed, APR, term, deposit, trade-in value, and fees. Use the car loan payment calculator to estimate monthly payments before comparing offers.
The short version
Car loan payments usually use the same amortisation logic as other fixed-rate loans:
Payment = P x r(1 + r)^n / ((1 + r)^n - 1)
- P is the amount financed.
- r is the monthly interest rate.
- n is the number of monthly payments.
The amount financed is not always the sticker price. Subtract deposits and trade-in equity, then add any financed fees.
Try it with your own numbers
Use the car loan payment calculator for monthly payment estimates. Then check the car affordability calculator, cost per mile calculator, and car depreciation calculator.
How the calculation works
First calculate the net amount financed:
- Vehicle price
- Minus deposit
- Minus trade-in value or equity
- Plus any fees added to the loan
Then convert APR to a monthly rate by dividing by 12. Multiply the loan term in years by 12 to get the payment count.
A worked example
Suppose:
- Vehicle price: 24,000
- Deposit: 3,000
- Trade-in equity: 2,000
- Amount financed: 19,000
- APR: 7%
- Term: 5 years
The monthly rate is 0.07 / 12. The number of payments is 60. The estimated payment is about 376 per month before insurance, maintenance, fuel, and tax.
Watch-outs
- Estimating from vehicle price instead of amount financed.
- Ignoring negative equity from an old loan.
- Comparing only monthly payment instead of total interest.
- Stretching the term without checking depreciation.
- Forgetting running costs.
How to read the result
Use the estimate to compare loan terms, deposits, and affordability. A lower monthly payment can still cost more overall if the term is longer. Also compare the car's expected depreciation with the loan balance so you understand negative-equity risk.
Tools mentioned in this article
Reader questions
Why is the monthly payment different from the dealer quote?
Dealer quotes may include fees, add-ons, taxes, different APR assumptions, or a different payment timing.
Does a longer term always help?
It lowers the monthly payment, but usually increases total interest and may increase negative-equity risk.
Should I include my trade-in?
Yes, but use equity rather than headline trade-in value if there is finance still outstanding.
Is APR the same as flat rate?
No. APR is designed to express annual borrowing cost. Flat-rate quotes can look lower and should be compared carefully.
