An auto loan amortizes the same way a mortgage does — same formula, shorter term. The vehicle price minus any down payment and trade-in value becomes the amount actually financed, and that amount is what accrues interest.
Why the term length matters more than people expect
Stretching a loan from 48 to 72 months lowers the monthly payment, which is why longer terms are heavily marketed — but it increases total interest paid substantially, since interest accrues for twice as long on a slowly-shrinking balance. It also raises the risk of being “underwater”: owing more than the car is worth, since vehicles depreciate faster in early years than a long loan pays down principal.
New versus used loan rates
Lenders generally charge a lower rate for new vehicles than used ones, reflecting lower default risk and better collateral value on a newer asset. The gap can be several percentage points, which meaningfully changes the total cost calculation — worth checking both a new and comparable used option before assuming the sticker price difference tells the whole story.
Trade-in value is a negotiation, not a fact
The number you enter here should be what the dealer actually credits toward the purchase, which is frequently lower than independent valuation guides suggest. Dealers profit on the spread between what they give you for a trade and what they can resell it for, so it is worth checking your car’s value independently before accepting a trade-in offer, or considering selling it privately instead if the gap is large.
What is missing from the sticker price
Sales tax, title fees, registration and documentation fees are not included here and vary significantly by location — some jurisdictions tax the full price, others tax the price minus trade-in value, which changes the effective cost meaningfully. Many buyers also roll these fees into the loan itself, which increases the principal financed and therefore the total interest paid, beyond what this calculator shows for the vehicle price alone.