Does a longer term lower my payment?
Yes, stretching the loan over more months lowers your monthly payment, but you will pay significantly more in total interest across the entire loan lifespan.
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How auto loan payments are calculated
Auto loans use an amortization formula where your monthly payment stays the same, but the portion going toward interest decreases over time while the portion paying down the principal increases.
Your total loan amount is the vehicle purchase price minus any upfront down payment, cash rebates, and net trade-in equity, plus required dealer documentation fees and state sales taxes.
By paying down principal faster with extra monthly payments or shortening the amortization duration from 72 to 48 months, buyers can dramatically cut aggregate interest expenses.
M = P [ r(1 + r)^n ] / [ (1 + r)^n - 1 ] M = Monthly Payment, P = Principal, r = Monthly Interest Rate, n = Number of Months
Frequently asked questions
Should I put zero down?
A zero-down loan increases your monthly payment and total interest. It also increases the risk of being 'underwater' (owing more than the car is worth) early in the loan.
What credit score gives the best auto loan interest rates?
Borrowers with credit scores of 740 and higher typically qualify for Tier 1 prime rates, saving several thousand dollars in total finance charges compared to subprime tiers.