How this calculator works
A car loan is repaid with equal monthly payments that cover the interest first and then reduce the balance. The amount financed is the price less your cash down payment and any trade-in credit. In payment mode the calculator applies the rate you enter and returns the payment, total interest and total of payments. In rate mode it reverses the calculation: given the payment a dealer has quoted, it finds the annual rate that makes the loan balance and the payments agree. That is useful because dealers often quote a payment rather than a rate, and a long term can make a high rate look affordable. The model assumes a constant rate, no fees and no prepayment penalty. A dealer may also add documentation fees, delivery charges or add-ons to the amount financed, which raises the effective cost; add them to the price if they are being financed.
Formula
Principal = price - down payment - trade-in. Monthly rate i = annual rate / 12. Payment = P x i / (1 - (1 + i)^-n). Total interest = payment x n - P. In rate mode the annual rate is found by solving the payment formula for i, between 0% and 300%.
Worked example
A $30,000 car with a $5,000 down payment and no trade-in finances $25,000. At 7% over 60 months the payment is $495.03 and total interest is $4,701.80. If the dealer quotes $500 a month for the same 60 months, the implied annual rate is about 7.42%.
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Frequently asked questions
Is the quoted rate the APR?
Not always. The APR includes fees and reflects the true annual cost, while the interest rate covers only interest. Ask for the APR as well as the rate, and compare offers on the APR if fees differ.
Why does a longer term lower the payment but cost more?
Spreading the same balance over more months reduces each payment, but interest is charged for more months, so the total rises. A longer term also keeps the balance above the car's value for longer.
Can I pay the loan off early?
Usually yes, but check for a prepayment penalty or an interest rule that front-loads charges. In Canada, many car loans are open, meaning you can pay them off early without penalty.
Should I finance a car at the dealer or at a bank?
Compare the APR, not just the payment. Dealer financing can be competitive, especially with manufacturer incentives, but a bank or credit union may be cheaper for a used car. Get at least two quotes in writing.