The real monthly cost of a car: price, trade-in, sales tax and interest, all in one number.
| Amount financed | — |
| Sales tax | — |
| Total interest | — |
| Total cost of the car | — |
| Payoff time (with extra) | — |
| Interest saved by extra payments | — |
M = P x r x (1 + r)^n / ((1 + r)^n - 1)
P is the amount financed after down payment, trade-in and tax; r is the monthly rate; n is the number of months. Car loans are simple-interest amortising loans, so interest is front-loaded: in the first year most of each payment is interest, not principal.
$32,000 car, $4,000 down, 7 percent sales tax, 7.5 percent for 60 months:
That is roughly 25 percent more than the sticker price, and it ignores insurance, fuel, maintenance and depreciation.
| Factor | Effect on total cost |
|---|---|
| Longer term | Lower payment, much higher total interest |
| Larger down payment | Less financed, less interest, less negative equity |
| Higher credit score | Directly lowers the rate, often by several points |
| Extra monthly payment | Cuts interest and shortens the term, no penalty in most contracts |
| Depreciation | Usually the largest single cost, larger than interest in the first three years |