How a fixed car loan payment works
Like most installment loans, auto loans typically use a fixed payment for the entire term. Early on, a larger share of each payment goes toward interest on the outstanding balance, with a smaller share paying down the car's price. That ratio shifts over time, but since auto loans are shorter than mortgages (usually 24 to 72 months), the shift is less noticeable month to month.
Formulas used
Monthly payment: P = L × i ÷ (1 − (1 + i)^−n)
Affordable loan amount (from a target payment): L = payment × (1 − (1 + i)^−n) ÷ i
New term with an extra payment: n' = −log(1 − L × i ÷ (P + extra)) ÷ log(1 + i)
Where L is the loan amount, i is the monthly interest rate (annual rate divided by 12 and by 100), n is the number of monthly payments, and P is the original payment.
Practical example
A $35,000 vehicle with a $5,000 down payment leaves a $30,000 loan. At a 7% annual rate over 60 months, the monthly payment comes out to roughly $594, totaling around $35,650 paid by the end — about $5,650 of that in interest. That's one reason a bigger down payment tends to pay off so clearly on auto loans: rates are usually higher than mortgage rates.
Why auto loan rates run higher than mortgage rates
Unlike a home, a car loses value quickly through use and age (it depreciates), which raises the lender's risk if the vehicle needs to be repossessed for non-payment. That added risk is a major reason auto loan interest rates tend to run noticeably higher than mortgage rates, even with much shorter terms.
The real impact of an extra monthly payment
Because each month's interest is charged on the balance at that moment, any extra amount applied reduces that balance immediately, so every following month accrues less interest. On higher-rate loans like auto loans, this effect is even stronger: a relatively small extra payment can produce a proportionally bigger saving than the same strategy applied to a lower-rate mortgage.
What this calculator doesn't account for
This simulation doesn't include auto insurance, registration and title fees, dealer add-ons, gap insurance, or the vehicle's depreciation over time (which can leave you owing more than the car is worth at some point in the loan). Treat the results as a planning estimate, and confirm exact terms with the lender or dealership before signing.