Loan Details
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Payment Summary
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Total Loan Cost
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Affordability Check (20/4/10 Rule)
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Recommended Max Car Price
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| # | Payment | Principal | Interest | Balance |
|---|---|---|---|---|
| Run a calculation to see the amortization table. | ||||
Showing months 1 - 12 of the full loan term.
How Car Loans Work in the US
In the United States, most car buyers finance their vehicle through an auto loan from a bank, credit union, or dealership financing arm. A car loan is a secured installment loan where the vehicle serves as collateral. Key components include:
- Principal.
- Interest Rate (APR).
- Loan Term.
- Sales Tax.
- Down Payment & Trade-In.
Tips for Getting the Best Auto Loan Rate
- Check your credit score before applying. A score above 740 typically qualifies you for the lowest rates. You can get a free credit report at AnnualCreditReport.com.
- Shop around with multiple lenders.
- Get pre-approved before visiting a dealership. Pre-approval gives you leverage to negotiate both the car price and the financing.
- Keep the loan term short (48 months or less) if you can afford the payment. Shorter terms have lower rates and you build equity faster.
- Make a larger down payment (at least 20% for new cars, 10% for used) to reduce the loan-to-value ratio and qualify for better rates.
- Avoid add-ons pushed by dealers (extended warranties, gap insurance at dealer markup, fabric protection). These inflate the loan amount and may have high markup.
- Consider a rate discount if the lender offers automatic payment deduction (typically 0.25%–0.50% off).
New vs. Used Car Considerations
- Depreciation: New cars lose 20%–30% of their value in the first year and about 60% over five years. A 3-year-old used car has already taken the biggest depreciation hit and may still have a factory warranty.
- Interest Rates: New car loans typically have lower interest rates than used car loans. The gap is usually 1 - 3 percentage points.
- Loan Terms: New cars often qualify for longer loan terms (up to 72 or 84 months). Used cars (especially older/higher mileage) may have term limits from some lenders.
- Warranty: New cars come with full factory warranties (typically 3yr/36,000mi bumper-to-bumper plus 5yr/60,000mi powertrain). Certified pre-owned (CPO) vehicles offer extended coverage at a lower purchase price.
- Insurance: New cars cost more to insure due to higher replacement value. Gap insurance is recommended for new cars with small down payments.
- Total Cost of Ownership:.