A car is one of the largest purchases you’ll ever make, so it’s important to understand how much you’ll pay to finance that purchase. Knowing your estimated monthly car loan payments can help you determine whether you’ll be able to afford the purchase.

Before you take on any new car debt, use an online car loan calculator to estimate how much you’ll pay each month based on the car’s purchase price, loan term, interest rate, and other factors.

What Is a Car Loan Payment?

When you finance a car, you’re borrowing money from a lender to purchase the car. In exchange, you promise to pay back the amount borrowed plus interest within a predetermined period of time through a series of (usually) fixed monthly payments called car loan installment payments.

Understanding how car loans work, how your payments are calculated, and the factors that affect them can help you make an informed decision when taking out a loan.

Factors That Affect Car Loan Payments

There are a number of factors that affect your car loan payments, as outlined below:

  • The purchase price of the car.
  • The down payment amount is the percentage of the vehicle’s value that you pay for upfront. A larger down payment can lower your car payments because you will have to borrow less money than if you financed the vehicle’s entire cost.
  • The trade-in value of your current car will be applied towards the cost of your new car and can reduce the amount you may need to borrow.
  • The loan term is the fixed period of time (in months) that you will have to pay back the loan. Longer terms can lower your monthly payments but will cost you more in interest over the long term.
  • The annual percentage rate (APR) is the interest rate plus any fees or additional charges you’ll pay on the amount you borrow over the entire term of your loan.  By using a loan’s APR instead of its interest rate, you can compare it with other fixed (or variable) loans on an “apples-to-apples” basis.

“Usually, the newer the vehicle, the higher the price will be,” shares Brad Reichert, debt expert and founder and managing director of Reichert Asset Management LLC. “However, it’s also important to note that the newer the vehicle, the longer the loan terms can be because the vehicle still has several years left in its useful life,” adds Reichert.  

How To Calculate Car Loan Payments

You can calculate your car loan payments using an online auto loan calculator. Follow the steps we’ve outlined below:

  1. Find an online auto loan calculator and make sure you have the details for your prospective car loan handy.
  2. Input the values in different fields, such as the price of the vehicle, interest rate, down payment, trade-in value, and loan term.
  3. The calculator will provide you with an estimate of your car loan payments along with other details like your payoff date, total interest cost, and amortization schedule.

How To Lower Your Car Payments

The best time to lower your car loan payments is before you sign the loan agreement. The average car loan payment for a new car was $726/month in Q3 2023. However, there are several ways to lower your payments before or after you take out a loan, as we’ve listed below:

  • Compare at least three loan offers to get the best car loan interest rate and loan term for your situation.
  • Make a larger down payment to reduce the total amount you need to borrow.
  • Buy a used car or a lower-priced vehicle so you don’t stretch your budget.
  • Extend the loan term as far out as it is reasonable to lower your monthly payments. However, with a longer loan term, you’ll pay more in interest over time and be at higher risk of having an upside-down car loan at some point between now and when you pay off the loan.
  • If you’ve already taken out a loan, make extra payments on it to pay it off faster.
  • Refinance your car loan to get a lower monthly payment if your credit score has improved since you originally bought your car.
  • Consider selling your car or trading it in for a more affordable vehicle.  

How To Pay Off a Car Loan Faster

When you pay off your car loan early, you can save a considerable amount of money in interest charges and obtain complete ownership of the vehicle earlier. Here are a few ways you can achieve that goal:

  • Refinancing your loan may be an easier way to pay off the loan faster if you can secure a lower interest rate and opt for a shorter term for your new loan.
  • Consider making biweekly auto loan payments instead of monthly. With biweekly payments, you’ll make 13 payments in one year instead of 12, which can help reduce your principal with that extra payment every year.
  • Round up your payments to the nearest hundred. Use a car loan payoff calculator to see how soon this can help you pay your loan.
  • Pay a lump sum toward your car loan every time you receive a bonus, tax return, or a windfall.

Should You Pay Off Your Car Loan Early?

Paying off your loan early will free up a few hundred dollars in your budget each month and provide you with early ownership of your vehicle. However, there are also a few disadvantages of paying off a car loan early:

  • If there’s a prepayment penalty on your loan, you may end up paying a considerable amount of money.  However, because of competition in the lending marketplace and a more educated consumer when it comes to lending terms and alternatives, very few automobile loans have prepayment penalties anymore.
  • Your loan may have precomputed interest, in which case, you won’t be able to lower the total loan cost significantly even if you pay off the loan early.  Again, as with prepayment penalties, precomputed interest is rarely, if ever, used in automobile loans these days.
  • If you have other high-interest debt, such as personal loans and credit cards, putting extra cash toward your car loan will take away from the extra cash flow you could enjoy if you were to pay those other high-interest debts off first.

Why You Should Have a Car Loan Repayment Schedule

Whether you’re planning to purchase a new or used car, a car loan repayment schedule will allow you to estimate your payments, know when your payments are due, and when the loan will be paid off.

Each car loan payment is split between principal and interest, and a repayment schedule will give you an idea of what portion of your monthly payment goes toward each. If you’re budgeting for a car purchase in the future, it can help you crunch numbers and make smarter financial choices so you can pay off your loan on time (or ahead of time), avoid late fees, and build a positive credit history.

How To Create a Car Loan Repayment Schedule

Your car loan repayment schedule outlines the repayment timeline for the loan. You can use an online calculator to create this schedule easily using your loan amount, interest rate, and loan term.

With a repayment schedule on hand, you can check to see how much of your car loan payment is applied to interest and principal. This information is important if you want to check whether you have an upside-down car loan, how much equity you have, and the effects of making extra payments on the loan.

Get Accurate Car Loan Estimates

The information you can get from using a car payment calculator can be useful in many ways. Knowing your car loan payments can help you compare loan offers, whether you’re planning to borrow from an online car retailer, a bank, a credit union, or directly from a “buy here, pay here” dealership.

You can get a pre-approval for an auto loan from multiple lenders to compare your options and estimate the total costs of each loan. Take the lowest-cost offer that matches your budget, using a loan term that helps you balance your overall interest costs with keeping the loan payments affordable. We also recommend comparing the cash rebates and incentives offered by different lenders since these can often be a huge benefit.