Car finance calculator
Last updated: January 1
Our finance calculator helps you answer the question: should I finance or pay for a new car up front? There are several factors to consider, and the finance calculator helps break it all down so you can make a more informed decision.
How to use the car finance calculator
To use the car finance calculator, simply fill out all the fields above and the calculator will give you an estimate of how much financing versus paying upfront will cost. You can adjust the value of each input you enter until you find either a financing or cash payment option that suits your budget.
Here's an overview of each value you'll enter. It should help you get a better idea of the important factors that go into financing a vehicle vs. paying for it outright.
The vehicle’s purchase price represents its total value, including registration fees, transportation fees, sales taxes and more, according to Credit Karma.
The down payment is how much you “put down” on a vehicle before your loan kicks in. It’s expressed as a certain percentage of the vehicle’s purchase price. The standard is a minimum of 10% and 20% for used and new cars, respectively, according to Car and Driver.
The loan term describes how long it’ll take to pay off your loan and is typically represented in months. Longer loan terms typically increase the overall cost of the loan but come with lower monthly payments, according to The Balance.
Regular interest rate
The interest rate helps fund the loan itself and is expressed as a percentage of the entire loan amount. Interest rates are different from annual percentage rates (APR), which is a percentage of the loan amount plus other fees, according to the Consumer Financial Protection Bureau (CFPB).
Sometimes manufacturers will offer cash returns to qualifying buyers. These are called cash rebates, says Kelley Blue Book (KBB). Rebates may be sent as a single payment that could go toward savings or it may be put toward the down payment. The finance calculator includes a dropdown for both.
Rebates may range between $500 to $5,000, according to Car and Driver. It depends on seasonal factors, your particular vehicle and the manufacturer.
Special dealer financing
Many dealerships offer financing themselves, according to Bankrate. It may be a finance company owned by the dealership, manufacturer or a separate company they've partnered with.
The idea is to make the car buying process more convenient. Instead of having to go to the dealership and find a finance company, you can do everything at the dealership itself. The drawback is that financing through a dealer tends to be more expensive.
However, some dealers offer special financing to qualifying customers. Similar to manufacturer rebates, they’re designed to attract car buyers.
Your state and federal tax rate
These are the percentages of your income that you owe the state and federal government. Your state’s official website should have a breakdown of tax rates by income bracket, and you can typically find information about federal income taxes on the IRS website.
Your savings interest rate
Savings accounts may build interest over time – this is what your bank pays you for letting them hold your money, says Forbes. Having a savings account that accrues interest can go toward “rainy day funds” and certain financial goals, adds CNBC.
What to know about dealership financing vs. direct lending
There are two main types of vehicle financing: getting a loan through the dealership or directly from a bank or financial institution. To decide which is right for you, it’s important to know how each one works.
When you agree to purchase a vehicle at the dealership, they may offer to finance the vehicle through their finance department, according to the CFPB. It may be a third-party lender or an in-house lender. Here are the upsides and downsides to consider.
Upsides of dealership financing:
- It makes it easy to test drive and buy a vehicle all in one day without having to shop around for a loan.
- Dealerships may have special manufacturer offers.
- Dealer financing can be a good option for those who haven’t qualified with an outside lender, according to Bankrate.
Downsides of dealership financing:
- There may be $0 down options, but you’ll typically pay more interest in the long run, according to Bankrate.
- People may be more likely to default, on average, when securing a loan through a dealer, according to a study by the CFPB.
- Low-rate offers may be limited to certain vehicles or require larger down payments, says the Federal Trade Commission (FTC).
Whichever you decide, Bankrate recommends financing from a bank before going to the dealership, as it gives you bargaining power. Also, dealers typically reach out to a few lenders and when they present you with a loan, you can ask about the others, including their interest rates and terms, says the CFPB.
Also called “direct financing,” bank financing means financing through a financial institution of your choice. It doesn’t have to be an institution you already bank with. As with dealer financing, there are upsides and downsides to bank financing, depending on your needs and financial situation.
Upsides of bank financing:
- You can shop around with as many (or as few) banks as you like until you find the best rates and loan terms.
- Interest rates with banks tend to be lower than through dealerships, says CFPB.
- You have greater reign over your loan terms.
- Bank financing may be a good option for larger loans, according to Bankrate.
Downsides of bank financing:
- Bank financing typically take longer than dealership financing.
- Certain credit scores may disqualify drivers for a bank loan, according to Bankrate.
Before you sign anything, be sure to understand the terms of your contract, advises the FTC. Additionally, understanding the costs and knowing the monthly payment is critical to assure you can comfortably make payments.
Benefits of buying a car with cash
Auto loans can help break up what might seem like an otherwise daunting price tag. But if you have the means, and can comfortably do so, buying a vehicle outright has many benefits.
- You pay less in the long run: Monthly auto loan payments come with interest, plus a host of other fees and added insurance mentioned above – whereas paying outright means avoiding thousands of dollars of all those added costs.
- No monthly installments: You may already be burdened by monthly payments – for instance, your home loan or rent. Buying a vehicle outright affords you one less major monthly payment to worry about. Plus, no need to fret over missed car payments or late fees.
- You may get a discount: Some dealers offer discounts for cash payments to qualifying car buyers, explains Car and Driver.
- You own the car: Taking out a loan gives the lender technical ownership of your vehicle. But buying your vehicle outright means you own the vehicle outright.
- Avoid negative equity: Also called being “upside down” – negative equity is when you owe more on your loan than your vehicle is worth, explains the CFPB. That negative equity needs to be covered before you can take trade it in and take out a loan on a new vehicle.
As mentioned above, sometimes automakers will encourage customers to purchase with a cash return offer – called a rebate. You might be wondering if the sales tax is applied after the rebate, but it ultimately depends on your state, according to Edmunds. Most states do, however, calculate the sales tax based on the vehicle’s price tag before the rebate kicks in.
For example, if you purchase a vehicle for $20,000 with a $500 rebate, you may end up paying the sales tax for that full $20,000 amount, not $15,000.
Consider all your financing options
You have a lot of options when it comes to buying a vehicle. Whether you decide to finance or buy yours outright, there are important things to consider.
Get the vehicle price info ahead of time
Ask the dealer to send you the total price of the vehicle before you in visit the dealership, advises the CFPB. That way, you can compare with other dealers and identity any additional costs. Plus, you won’t feel beholden to one payment option, which may not be the best for you.
Shop around for loans
As we mentioned, it’s important to compare loans. Shop around with credit unions, banks, online members and dealers, says Bankrate. Doing so is essential to clamping down the best rates. Arriving at the dealership with multiple quotes can give you an edge when talking price.
Also, be on the look out for added costs and penalties. There’s no be-all and end-all auto loan terms – what’s right for someone else may not be right for you, and vice versa.
Understand your budget
Knowing how much you can afford will help you establish a price range – not to mention, whether to pay for your new car in cash or take out an auto loan. If the latter, having a budget makes it easier to home in on rates and terms that align best with your financial situation, and give you an idea of the down payment you can comfortably afford.
To get the biggest bang for your buck, KBB encourages buyers to factor in the vehicle’s the J.D. Power Quality Rating. These will clue you in on vehicles that not only last longer but also tend to depreciate slower.
Paying in cash or financing aren’t you’re only options for purchasing a vehicle. Another avenue you might explore is leasing.
Leasing is a lot like financing, except lease terms tend to be shorter and you return the vehicle after term is up. It’s typically cheaper because you’re not paying the vehicle’s full price, according to CNBC.
Leasing can be especially enticing for car buyers who want a high-end vehicle at a more affordable price – or for those who prefer not to be stuck with the same vehicle for years on end.
Factor in extra costs
On top of the vehicle’s price and all the pesky fees that come with it – keep in mind costs associated with the vehicle, advises Kelley Blue Book. For instance, fuel economy, maintenance and auto insurance.
Factoring in all the potential expenses helps you budget accordingly and alleviates any unwanted surprises down the line.
Car finance FAQs
Car loans are calculated by taking numerous factors into account. For instance:
- Vehicle’s purchase price
- Your state and federal tax
- The interest rate on your savings account (if you have one)
- Loan term
- Down payment
- Interest rate
Use an auto loan calculator to get an idea of what your potential car loan payments might look like.
A 72-month auto loan term is fairly common, according to Edmunds. But longer loan terms do have downsides, even if the monthly payment seems promising.
For starters, the longer loan terms typically increase the cost of the loan, despite lower monthly payments. That’s largely due to the interest rate. Also, longer loans increase the likelihood of negative equity, warns the CFPB.
A finance charge is what you pay to borrow money from a lender, according to Bankrate. Finance charges may include interest rates, application fees and more. They’re typically associated with paying using credit, according to MoneyTips. Lenders are required, by law, to disclose these before you borrow money.