A car's sticker price isn't what you borrow. Sales tax pushes the amount up; your down payment and trade-in bring it down. Get those right and the monthly payment is simple arithmetic. Here's the method, with a worked example and the free auto loan calculator.
The amount you actually finance
Start by finding the loan amount:
Amount financed = price + sales tax − down payment − trade-in
In most US states, sales tax is charged on the price after subtracting the trade-in, which lowers your tax bill. A few states tax the full price — worth checking your state's rule, since it changes the total.
The payment formula
The monthly payment uses the same amortized-loan formula as a mortgage:
M = P × r(1 + r)ⁿ ÷ ((1 + r)ⁿ − 1)
with P the amount financed, r the monthly rate (APR ÷ 12 ÷ 100), and n the term in months.
Worked example
A $35,000 car, $5,000 down, no trade-in, 6% sales tax, 60 months at 7% APR.
- Sales tax = 35,000 × 6% = $2,100
- Amount financed = 35,000 + 2,100 − 5,000 = $32,100
- Monthly rate r = 7 ÷ 12 ÷ 100 = 0.005833, n = 60
That works out to about $636 a month, with roughly $6,050 of total interest over five years.
Why the term matters
Stretching the loan lowers the monthly payment but raises the total cost. The same $32,100 at 7% costs about $636/mo over 60 months but around $550/mo over 72 months — yet you'd pay roughly $1,400 more in interest for the longer term. Try both in the calculator to see the trade-off.
FAQ
Is sales tax financed into the loan? Usually yes — unless you pay it up front, the tax is added to the amount financed and spread across your payments.
Does a trade-in lower my tax? In most states, yes: tax is charged on the price minus the trade-in value, so a trade-in reduces both the loan and the tax.
What's a good down payment? Many buyers aim for 10–20% to keep payments manageable and avoid owing more than the car is worth early in the loan.
Is my data private? Yes — everything is calculated in your browser and nothing is uploaded.