Car Loan Monthly Payments: Simple Steps to Calculate Yours
Car Loan Monthly Payments: Simple Steps to Calculate Yours
Mary works hard as a dedicated teacher. And though she knows she needs a reliable vehicle, she’s nervous about how much of a hit her monthly budget will take with a car payment.
Luckily, Mary can easily get an estimate of her car loan monthly payment using the EarnIn auto loan calculator1, and even review payment tables at various rates. By doing this, she can prepare and not be surprised when the time comes to start paying her loan back. Whether your loan is $15,000, $20,000, or more, here's how to understand your rate and your schedule.
Know what makes up your car loan monthly payment
A car payment isn’t just paying back the purchase amount of your car. It’s typically made up of four components; knowing these can help you budget accordingly and avoid surprises. Here's what each component means:
- Principal is the purchase amount of the car; or the money you originally agreed to pay back.
- Interest is the money you pay above the principal — it’s how lenders make their money and is typically represented as a percentage (annual percentage rate, APR).
- Loan term is the payback schedule of the loan. Car loan terms can include but are not limited to the following:
- 24 months (2 years)
- 36 months (3 years)
- 48 months (4 years)
- 60 months (5 years)
- 72 months (6 years)
- 84 months (7 years)
- Down payment is the amount you pay at the beginning of the purchase, before the loan term starts.
Step-by-step guide to estimating your car loan payment
Your monthly car loan payment pays for the principal and interest. But the particulars of an auto loan can change the portion of your payment that goes toward actually paying the loan principal down. Here's a step-by-step guide for staying on top of your financing.
Step 1: Gather your loan details
To calculate a monthly car loan payment, you’ll need to nail down the four components of your loan:
- The purchase price of the vehicle
- The term of the loan (number of years or months of the loan)
- The interest rate of the loan
- The down payment amount
Use EarnIn's auto loan calculator1 to help discover how big a difference varying interest rates and larger down payments can make.
Step 2: Try EarnIn's auto loan calculator
EarnIn's auto loan calculator1 is simple to use and requires no registration or membership. It can quickly provide valuable data to help you understand the total cost of a car loan and what monthly payments could look like.
To use the calculator1, input the component information listed in the section above and click the “Calculate your payoff plan” button at the bottom of the page. The calculator will deliver instant data, including:
- Estimated monthly payment
- The date you’ll complete payments
- The total amount of interest paid
- The total amount of money paid
You can also use the calculator1 to help view a payment schedule or to change some of the variables of the loan (interest rate, down payment, or terms) to adjust the monthly payment to something that works with your budget.
Step 3: Review and understand your results
The calculator1 tells the story of your auto loan based on the information you provide. But it can also tell the story of what your auto loan "might be," based on any adjustments you make.
If, after providing the numbers, the monthly payment seems too high, try increasing your down payment, lengthening the term, or reducing the interest rate if there’s a chance you can shop around for a lower rate. Lowering the total amount of the loan lowers the monthly payment.
Red flags to watch out for can include:
- A monthly payment exceeding what you can reasonably afford
- Making the term too long, resulting in more interest paid overall
- Any car loan terms that you don’t fully understand
See real payment examples before you borrow
Now that you understand how the interest rate and terms can have an impact on your monthly payment, here are some examples — generated by EarnIn's auto loan calculator1— that show just how big of an impact.
In the table below, see how monthly payments can vary by term, with the auto purchase amount being $15,000, a down payment of $500, and a 4% interest rate.
Term | Monthly payment | Total interest paid | Total loan payments |
36 months | $428.10 | $911.52 | $15,411.52 |
48 months | $327.40 | $1,215.02 | $15,715.02 |
60 months | $267.04 | $1,522.37 | $16,022.37 |
Here is the same purchase amount at a higher interest rate of 6%.
Term | Monthly payment | Total interest paid | Total loan payments |
36 months | $441.12 | $1,380.25 | $15,880.25 |
48 months | $340.53 | $1,845.58 | $16,345.58 |
60 months | $280.33 | $2,319.54 | $16,819.54 |
Here's what happens when the interest rate goes even higher — to 8% — with the same loan.
Term | Monthly payment | Total interest paid | Total loan payments |
36 months | $454.38 | $1,857.58 | $16,357.58 |
48 months | $353.99 | $2,491.39 | $16,991.39 |
60 months | $294.01 | $3140.46 | $17,640.46 |
How down payments can change things
The following table features a $20,000 car purchase with varying down payments, 4% interest, and a 60-month term. Pay attention to the monthly payment and total loan payments for each.
Down payment | Monthly payment | Total loan payments |
$500 | $359.12 | $21,547.33 |
$2,000 | $331.50 | $19,889.84 |
$5,000 | $276.25 | $16,574.87 |
In the examples above, the larger down payment is nearly “reimbursed” by the overall savings in interest payments!
Down payments not only have the potential to lower your monthly payment, but they can also result in lower interest rates from the lender and reduce the amount you pay overall.
Know what really affects your car loan payments
When a lender looks at your car loan application, they’re mainly trying to guess how likely you are to pay them back based on your credit history and income.
Your credit score can make a difference
Your credit score is a numerical representation of your payment history and is used by most lenders to determine your auto loan interest rate.
Here is an estimate of the car loan interest rates according to credit score (note that these can vary based on a variety of factors):
Credit score | Average APR (new car) | Average APR (used car) |
781-850 | 5.27% | 7.15% |
661-780 | 6.78% | 9.39% |
601-660 | 9.97% | 13.95% |
501-600 | 13.38% | 18.90% |
300-500 | 15.97% | 21.58% |
Cleaning up and improving your credit score before applying for a car loan might result in a lower interest rate. Here are some steps you can take:
- Review your credit report for errors and request corrections
- Bring delinquent debt to current
- Don’t apply for new credit before applying for the car loan
- Use EarnIn's Credit Monitoring2 tool to get alerts about important changes to your credit report
If improving your credit score isn’t feasible, try increasing your down payment and shopping around for the best interest rate — which may not come from the dealership.
Choose the right loan term for you
As demonstrated in the tables above within the payment examples, a longer term will lower your monthly payment but will increase the total amount you pay over the life of the loan.
As the cost of a vehicle increases, lenders are responding with longer loan terms. It’s important to consider not only the monthly payment, but also the overall cost. The general rule is to keep your monthly car payment below 10% of your monthly take-home pay.
Making the most of your down payment
As a general rule, a suggested down payment on a new car is 20% and 10% for used vehicles. As shown in the above table on down payments, a higher down payment can be advantageous to borrowers.
If it’s difficult to pull together a down payment for a car, EarnIn’s Cash Out3 feature can help fill the gap. You can access up to $150/day, with a max of $1,000 between paydays of the wages you’ve already earned3 — no interest, no mandatory fees, and no credit check. Cash Out3 can be a useful, less-risky cash tool since the timing for a down payment doesn’t always line up with the timing for payday.
Budget smart for your car payment
When budgeting for a car payment, consider the other costs associated with a car, such as car insurance, gas, and maintenance. And if you’re one of the many hourly workers with a variable income, try not to have your monthly car loan payment exceed 10% of your average monthly income.
A car payment emergency fund can help relieve some of the pressure of having a variable income. But EarnIn’s Cash Out3 can help bridge paycheck-to-paycheck gaps so your car payment stays consistent, even in months with variable income.
When money feels tight, EarnIn can offer flexibility
EarnIn’s Cash Out3 can help people budget more effectively for expenses like down payments and car payments. With Cash Out3, you can get up to $150/day, with a max of $750 between paydays in just 1– 3 business days with standard service. For faster transfers, try Lightning Speed5 to get cash in minutes (starting at $3.99 per transfer).
Cash Out3 customers can avoid many of the often-outrageous fees associated with risky alternatives like payday loans. Tips4 are always optional with EarnIn and don’t affect your service.
Making every day a payday
EarnIn customers don’t have to wait for payday to take care of their expenses. Whether it’s pulling together a down payment for a car, making a car payment, or getting groceries before payday hits, Cash Out3 can help make budgeting easier.
FAQs
What's the difference between APR and interest rate on car loans?
The annual percentage rate (APR) is the total annual cost of borrowing, while the interest rate is the percentage that the lender charges for the loan.
Should you get pre-approved before shopping for a car?
Yes! Shop around for the best interest rate and terms. You can start with your bank or credit union.
How much car can you afford on a $15/hour wage?
Though it depends on your other expenses, you should aim for a monthly payment of around $260. Use EarnIn's auto loan calculator1 to determine how much of a vehicle you can afford with your down payment.
Can you refinance your car loan to lower your monthly payment?
Some financial institutions allow car owners to refinance their car loans, though this largely depends on the equity in the vehicle and your current credit situation.
Please note, the material collected in this post is for informational purposes only and is not intended to be relied upon as or construed as advice regarding any specific circumstances. Nor is it an endorsement of any organization or services.
This Blog was sponsored by EarnIn. While the author received compensation, the information shared is grounded in independent research and intended to provide helpful and accurate guidance to readers.
EarnIn is a financial technology company, not a bank. The Cash Out product is provided exclusively by EarnIn. Certain bank products are provided by Evolve Bank & Trust and/or Lead Bank, Members FDIC. The FDIC insures deposits to protect your money in the event of a bank failure. More details about deposit insurance here. Additional services in the app are offered in partnership with trusted third parties.
1
The calculations provided are based on estimates and should be used for informational purposes only. Please be aware that comparisons may not be 100% accurate. The insights and data presented do not constitute financial advice, and we recommend consulting with a qualified financial advisor for personalized guidance.2
Your VantageScore 3.0 from Experian® indicates your credit risk level and is not used by all lenders, so don't be surprised if your lender uses a score that's different from your VantageScore 3.0. Learn more.3
A pay period is the time between your paychecks, such as weekly, biweekly, or monthly. EarnIn determines your daily and pay period limits (“Daily Max” and “Pay Period Max”) based on your income and financial risk factors as outlined in the Cash Out Maxes section of our Cash Out User Agreement. EarnIn reserves the right to adjust the Daily Max and Pay Period Max at its discretion. Your actual Daily Max will be displayed in your EarnIn account before each Cash Out.EarnIn does not charge interest on Cash Outs or mandatory fees for standard transfers, which usually take 1–2 business days. For faster transfers, you can choose the Lightning Speed option and pay a fee to receive funds within 30 minutes. Lightning Speed may not be available at all times and/or to all customers, see the Lightning Speed Fee Table and Cash Out User Agreement for details and eligibility requirements. Tips are optional and do not affect the quality or availability of services.
4
Tips go to EarnIn and help us provide tools such as Credit Monitoring for free and keep Lightning Speed fees low. Your service quality and availability aren’t affected by whether you tip or not.5
Lightning Speed is an optional service that allows you to expedite the transfer of funds for a fee. Depending on the product, the fee may be charged by EarnIn or its banking partner. Lightning Speed may not be available to all customers. Actual transfer speeds depend on your bank. See the Lightning Speed Fee Table for details.
