Auto Loan Calculator

About the Auto Loan Calculator

The arithmetic of a car loan is the same as any other loan. What makes it worth a calculator of its own is the car.

A house usually holds its value or gains. A car does not. It loses roughly a fifth of its value in the first year, and on a long loan the balance falls far more slowly than that. For a stretch in the middle you owe more than the thing is worth — and that is not an abstraction. It decides whether you can sell, and it decides what happens if the car is written off.

This calculator gives you the payment, and then it tells you how long that stretch lasts.

How to Use the Auto Loan Calculator

Enter the vehicle price and your deposit.

If you are trading a car in, put its value in, and anything still owed on it in the next field. If the balance is larger than the value, the difference is rolled into the new loan — which the calculator will say plainly.

Add the sales tax rate and any fees. Both are normally financed rather than paid up front, which is why they belong in the loan and not in a footnote.

Finally the rate and the term in months. Car loans are quoted in months, and the difference between 48 and 84 is the whole point of the exercise.

What You Actually Finance

Almost nobody borrows the sticker price.

  amount financed = price
                  + sales tax
                  + fees
                  − deposit
                  − trade-in equity      (value − what is still owed)

On a £32,000 vehicle with 7% tax, £600 of fees and £3,000 down:

  32,000 + 2,240 + 600 − 3,000 = 31,840

So a £32,000 car becomes a £31,840 loan despite a £3,000 deposit. The tax and fees ate most of it.

The trade-in does two jobs. In most places sales tax is charged on the price less the trade-in, so a £9,000 trade-in reduces the balance by £9,000 and the tax bill by £630. That is a real advantage over selling privately, and it is worth counting before deciding which route wins.

The Payment Formula

             r
  P = A × ─────────
          1 − (1+r)⁻ⁿ

  A = amount financed
  r = annual rate ÷ 12
  n = number of monthly payments

At 8.5% over 72 months on £31,840, that is £566.06 a month, and £8,916.64 of interest — 28% of what was financed.

Interest-free dealer finance is a real offer, and the formula divides by zero there. That case is handled separately: the payment is simply the amount shared across the months.

The Cost of a Longer Term

Two things happen as the term stretches, and dealers only mention the first.

The payment falls — £1,005 becomes £504, which is what makes an unaffordable car look affordable.

The interest more than doubles, and the loan crosses from never being underwater to being underwater for four years.

The step from 60 to 72 months is the one that matters. It saves £87 a month and costs £1,562 in extra interest, and it is the point at which the negative-equity window opens at all.

Being Underwater, and When It Ends

A car is worth roughly 80% of its price after a year, and around 15% less again each year after that. Your balance follows a different curve entirely.

On the 72-month example, after twelve payments the car is worth about £25,600 and you still owe £27,590.66. You are £1,990 short. Selling would mean finding that in cash; a write-off would pay out the car's value and leave you owing the rest.

The balance catches up at payment 33 — two years and nine months in. From there the car is worth more than the loan and the position is normal.

This calculator walks your actual schedule against the depreciation curve to find that payment. The depreciation figure is an estimate and is labelled as one, because real curves vary by make, mileage and condition. What does not vary is the shape: every plausible curve is steep at the start, which is why the window exists.

Step-by-Step Example

£32,000 vehicle, £3,000 down, 7% sales tax, £600 fees, 8.5% over 72 months.

  Sales tax:     32,000 × 7%             =  2,240.00
  Financed:      32,000 + 2,240 + 600 − 3,000 = 31,840.00

  Monthly rate:  8.5% ÷ 12 = 0.7083%
  Payment:       31,840 × 0.007083 ÷ (1 − 1.007083⁻⁷²) = 566.06

  Total paid:    72 × 566.06 = 40,756.64
  Interest:      40,756.64 − 31,840 = 8,916.64
  All in:        40,756.64 + 3,000 deposit = 43,756.64

A £32,000 car costs £43,756.64.

Now the same car with a trade-in that is not paid off. Trade-in worth £8,000 with £12,000 still owed, no deposit:

  Shortfall rolled in:  12,000 − 8,000 = 4,000
  Taxable:              32,000 − 8,000 = 24,000  →  1,680 tax
  Financed:             32,000 + 1,680 + 600 + 4,000 = 38,280
  Payment:              680.56 a month
  Interest:             10,720.08
  Underwater until:     payment 46

The £4,000 rolled forward adds £114 a month, £1,803 of interest, and thirteen months to the negative-equity window — all of it borrowed against a car that is no longer yours.

Understanding Your Result

The monthly payment is the loan payment. Insurance, fuel, tax and servicing are on top and are not small.

Amount financed shows how the price became the loan. The gap between them is usually larger than people expect.

Interest is the total and the share of what you financed — the clearest single measure of the credit.

Total cost is everything, including what you put in.

Negative equity is the part no other line tells you: how long you owe more than the car is worth.

When Should You Use This Calculator?

Before you walk into a dealership. Knowing the payment for a given price and term is the difference between negotiating on price and negotiating on payment — and dealers would much rather do the second.

Choosing a term. The table above is the argument for the shortest term you can afford, and the crossing from "never underwater" to "underwater for years" is a sharper line than the monthly saving suggests.

Deciding on a deposit. A larger deposit closes the negative-equity window faster than anything else.

Weighing a trade-in against a private sale. The tax saving on the trade-in is real money and belongs in the comparison.

Before rolling a shortfall forward. Seeing what £4,000 of old debt does to the new loan is usually enough to stop it.

Common Mistakes

Negotiating on the monthly payment. A dealer can hit almost any payment by lengthening the term. Agree the price first, the term second.

Forgetting tax and fees are financed. They add thousands to the loan, not to the drive-away figure you were quoted.

Treating a long term as harmless. It roughly doubles the interest from 36 to 84 months and opens a multi-year window where you cannot sell.

Rolling negative equity forward. It is the fastest route to a loan far larger than the car, and it compounds on the next purchase.

Ignoring gap insurance while underwater. Standard insurance pays the car's value. Gap insurance covers the difference to the loan, and it is worth considering precisely for the window this calculator shows you.

Budgeting only the payment. Insurance on a newer car, fuel, road tax and servicing frequently add as much again.

Reading this as a quote. A lender assesses credit history and may offer a different rate or decline. Every figure here is an estimate for planning.