Auto Loan Calculator Guide: How Car Payments Are Calculated
The exact formula behind a car payment, how trade-ins and sales tax factor in, and a full worked example from vehicle price to monthly payment.
A car payment uses the same loan amortization formula as a mortgage, but the amount financed is built from a few more moving pieces first: price, down payment, trade-in, and sales tax.
Step 1: find the amount financed
Amount financed = vehicle price − down payment − trade-in value + sales tax. In most states, sales tax is calculated on the price after subtracting the trade-in value, not the full price.
Step 2: apply the loan payment formula
M = P × [r(1+r)^n] ÷ [(1+r)^n − 1], where P is the amount financed, r is your monthly interest rate (APR ÷ 12), and n is the loan term in months.
Full worked example
| Step | Amount |
|---|---|
| Vehicle price | $35,000 |
| − Down payment | $3,000 |
| − Trade-in value | $5,000 |
| Taxable amount (price − trade-in) | $30,000 |
| + Sales tax (7%) | $2,100 |
| = Amount financed | $29,100 |
| Monthly payment (6.9% APR, 60 months) | $574.84 |
| Total interest over 60 months | $5,390.58 |
Run your own numbers through the Auto Loan Calculator to see the same breakdown for any price, down payment, trade-in, tax rate, APR, and term.