The calculator uses the standard amortisation formula applied to the net loan amount: vehicle price minus down payment, minus trade-in value, plus sales tax on the vehicle price.
Net loan = (Vehicle price × (1 + tax%)) − Down payment − Trade-in Monthly payment = Loan × [r(1+r)⊃n] / [(1+r)⊃n − 1] where r = monthly rate (APR ÷ 12) and n = loan term in months.
Focusing only on the monthly payment. Dealerships deliberately extend loan terms to 72 or 84 months to make expensive cars seem affordable. A $438/month payment on an 84-month loan at 7.1% costs $7,952 in interest versus $3,232 on a 36-month loan. Always compare total cost, not just the monthly figure.
Skipping the pre-approval step. Walking into a dealership without a pre-approved loan offer hands all rate negotiation power to the dealer. Get pre-approved from your bank or credit union first. Use that rate as a baseline and let the dealer beat it — they often can.
Not accounting for depreciation. A new car loses roughly 15-20% of its value in year one and 50-60% over five years. On a $32,000 car with 5% down and a 72-month loan, you are likely underwater (owing more than the car is worth) for the first 2-3 years. If you have an accident and the car is totalled, gap insurance is essential.
Not including sales tax in the calculation. A $32,000 car in a 7% sales tax state actually costs $34,240. If you roll sales tax into the loan, you are paying interest on the tax too. This calculator includes tax in the loan amount by default.
Accepting the dealer's first rate offer. Dealer financing is often 1-2% higher than rates available from credit unions or direct banks. On a $29,000 loan, 1% more in rate costs roughly $870 extra in interest over 60 months.
Average new car loan rates range from 5.5% (excellent credit, 750+) to 21% (bad credit, below 600) in 2026. The national average across all tiers is approximately 7.1% for new cars and 11.3% for used cars. Credit unions typically beat bank and dealer rates by 1-2 percentage points.
How much car can I afford on a $60,000 salary?
Using the 15% of monthly take-home guideline: $60,000 salary nets roughly $4,100/month, so maximum car payment is $615/month. At 7.1% for 60 months, this supports a loan of about $30,000. With 10% down, you can afford a car priced around $33,000-$34,000 before tax.
Is a 60-month or 72-month auto loan better?
60 months is generally the recommended maximum. A 72-month loan costs approximately $1,200 more in interest on a $29,000 loan and leaves you underwater for 2-3 years as the car depreciates faster than the loan balance decreases. Only consider 72 months if the lower payment is essential and you plan to keep the car long-term.
Should I finance through a dealer or bank?
Get pre-approved by your bank or credit union first, then see if the dealer can beat it. Credit unions average 1.5-2% lower rates than dealer financing. However, manufacturer financing (0% or 1.9% promotions) can beat both — just confirm there is no price increase attached to the financing deal.
What is gap insurance and do I need it?
Gap insurance covers the difference between what you owe on your car loan and what the car is worth if it is totalled or stolen. It is essential if you finance more than 80% of a new car's value, especially with 60+ month loans where you will be underwater for 12-24 months. Dealer-sold gap insurance is typically overpriced — buy it through your auto insurer instead.