Monthly payment
$575
Loan amount: $30,400
Total interest$4,500
Total cost$36,500
Tax + fees$2,580
Payoff—
Vehicle price minus trade-in plus tax, title, and fees — then financed at your rate. Every dollar accounted for.
Behind the dealer's offer is the same payment-formula every lender uses. The work is in the inputs: tax base depends on whether your state credits the trade-in, fees vary by state DMV, and dealer add-ons are often negotiable.
Tax — sales tax × (Price − Trade-in) in most states; (Price) in non-credit states (HI, KY, MD, MI, MT, VA, etc.).Fees — destination charge, document fee, registration, title, license, dealer add-ons.r — APR ÷ 12. n — months in the loan.| Tier | FICO | New car APR | Used car APR |
|---|---|---|---|
| Super prime | 781+ | 5.6% | 7.6% |
| Prime | 661–780 | 7.2% | 9.7% |
| Near prime | 601–660 | 9.7% | 14.0% |
| Subprime | 501–600 | 13.2% | 18.9% |
| Deep subprime | ≤500 | 15.6% | 21.8% |
| Source: Experian State of the Automotive Finance Market, Q4 2025. Used-car rates run 1.5–6 percentage points higher than new across all tiers. | |||
"What payment can you afford?" is the most expensive question in car-buying. The dealer can hit any payment by extending the term or adding fees. Negotiate the out-the-door (OTD) price first, then the financing separately.
A 78-month / 18% APR loan on a depreciating asset is the closest thing to a wealth incinerator. Combined with the typical 5% down, the borrower is upside-down for the entire first 4 years. Any incident — accident, job loss, mileage overrun — produces a five-figure deficiency balance.
After agreeing on price, you're sent to Finance & Insurance for the paperwork. The F&I office's job is to sell extended warranties, GAP insurance, paint protection, key replacement, and tire-and-wheel coverage — usually at 50–100% markup. Buy GAP from your auto insurer ($20–30/yr) instead. Decline the rest unless you've researched specific products in advance.
Sources: Experian State of the Automotive Finance Market (quarterly), CFPB Auto Finance Origination guidance, Federal Reserve Consumer Credit (G.19), Cox Automotive Market Insight.
60 months (5 years) is the sweet spot for new cars. The CFPB and most credit unions flag 84-month loans as a warning sign — you spend years upside down (owing more than the car is worth), pay 40–60% more in lifetime interest, and many borrowers refinance into a new loan before the first one is paid off, compounding the damage. 36–48 months on a used car keeps depreciation ahead of amortization.
In most states, yes — and the savings are bigger than people realize. Sales tax is typically computed on (price − trade-in credit), so a $5,000 trade-in at 6.5% sales tax saves $325 in tax on top of the price reduction. States that don't credit the trade-in (HI, KY, MD, MI, MT, VA, etc.) tax the full price. Even where the credit applies, compare the dealer's offer to private-sale value (Kelley Blue Book private-party).
Per Experian (Q4 2025): super prime (FICO 781+) ~5.6% new / 7.6% used; prime (661–780) 7.2% / 9.7%; near prime 9.7% / 14.0%; subprime 13.2% / 18.9%. Anything materially above your tier's average is a red flag — typically the dealer is taking a finance reserve markup. Get an independent pre-approval from a credit union or bank as your floor.
Yes — almost always. A bank or credit union pre-approval gives you a benchmark APR and turns the conversation from "can I afford the payment?" (the dealer's frame) to "what's the best total cost?" (yours). Dealer-arranged financing is usually marked up 1–3 points above the wholesale rate the lender would have given you directly — that markup is the F&I office's compensation.
Owing more than the car is worth — also called "negative equity." The first two years of any new car are the worst: ~20% depreciation hits in year one, but on a 72-month loan you've paid down only ~12% of the principal. Gap insurance covers the deficiency for ~$20–30/year through your auto insurer (much cheaper than the dealer's F&I office).
Lease for the lower monthly payment, buy for ownership. Lease wins if you want a new car every 3 years and stay under the mileage cap; buy wins if you keep cars 7+ years (the cheap years are after the loan is paid off). Buying used and keeping 8+ years is the lowest-total-cost approach by a wide margin.
A common car-buying heuristic: 20% down, finance for no more than 4 years, total transportation cost (loan + insurance + fuel + maintenance) under 10% of gross income. The 20% down keeps you ahead of depreciation. The 4-year cap forces a sane price ceiling. The 10% transportation budget keeps cars from crowding out savings. Most US households fail at least two of the three.
OTD = "Out The Door" price, including sales tax, title, registration, doc fee, and any dealer add-ons. The headline "sale price" excludes most of these. Always negotiate OTD — a dealer who's reluctant to quote OTD until the last 5 minutes of the deal is hiding fees. Negotiable add-ons: VIN etching, nitrogen tires, paint protection, fabric protection, dealer-installed alarm.
Yes for simple-interest loans (most US auto loans since 2010). Each extra principal payment reduces the balance, so the next month's interest accrues on a smaller number. Confirm two things: (1) no prepayment penalty (rare on standard loans), and (2) the extra payment is being applied to principal — call and confirm. On a $30,000 / 60-month / 7% loan, an extra $50/month saves ~$700 in interest and pays the loan off ~6 months early.
Manufacturers often run "either/or" promotions: $X cash rebate OR Y% APR financing. The math depends on size. On a $35,000 vehicle: a $3,000 rebate at 7% APR for 60 months gives a $632 monthly / $5,800 lifetime interest. 0% APR for 60 months on the full $35,000 gives a $583 payment / $0 interest. Rebate option usually better for short terms; 0% wins on long terms or large balances. Run both through this calculator.