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The monthly auto loan payment is calculated using the standard loan amortization formula: PMT = P × [r(1+r)^n] / [(1+r)^n − 1], where P is the total amount financed (price minus down payment and trade-in, plus sales tax and dealer fees), r is the monthly interest rate (APR / 12), and n is the total number of months.

In most US states, yes! The trade-in credit reduces the taxable purchase price of the new vehicle. For example, if you buy a $35,000 car and trade in your old car for $10,000, you only pay sales tax on the $25,000 difference, saving you hundreds of dollars in taxes.

Auto loan interest rates depend heavily on credit score and whether the vehicle is new or used. Borrowers with excellent credit (750+) typically see rates between 5.0% and 6.5% for new cars, while average credit scores (650-700) range between 7.5% and 9.5%. Used car loans typically carry interest rates 1% to 2% higher than new car loans.

While a 72-month or 84-month loan provides a lower monthly payment, it significantly increases the total interest you pay and keeps you in negative equity (owing more than the car is worth) for years. Financial advisors recommend keeping loan terms to 60 months or fewer for new vehicles and 48 months or fewer for used vehicles.

The traditional guideline (the 20/4/10 rule) recommends putting at least 20% down on a new car to offset immediate vehicle depreciation, financing for no more than 4 years, and keeping total transportation expenses under 10% of gross monthly income.