How Much Interest Will I Pay on My Car Loan?
When you shop for a car, the monthly payment gets most of the attention. But the total interest you pay over the life of the loan can add up to thousands of dollars, and it changes a lot depending on the rate and how long you take to pay it back.
Here is how car loan interest works, a few examples to show how much it can cost, and simple ways to pay less. To see your own numbers, enter your loan amount, rate, and term in Savenello's free loan calculator. It shows your monthly payment, total interest, and a year by year breakdown.
How car loan interest works
Most car loans are simple interest installment loans. Each month, the lender charges interest on the amount you still owe. Your payment covers that interest first, and the rest lowers your balance (the principal).
Early in the loan, your balance is high, so more of each payment goes to interest. As the balance drops, more goes to principal. For example, on a $20,000 loan at 7% APR, the first month's interest is about $117. These are example numbers.
Three things decide how much interest you pay in total:
1. The amount you borrow. A bigger loan means more interest.
2. The interest rate (APR). A higher rate means more interest each month.
3. The loan term. A longer loan means more months of interest.
Example: a $20,000 car loan at 7% APR
These numbers are examples, rounded, using standard loan math. Your lender sets your actual rate and terms.
| Term | Monthly payment | Total interest |
|---|---|---|
| 48 months (4 years) | about $479 | about $2,990 |
| 60 months (5 years) | about $396 | about $3,760 |
| 72 months (6 years) | about $341 | about $4,550 |
| 84 months (7 years) | about $302 | about $5,360 |
Going from 60 to 72 months lowers the payment by about $55 a month, but it costs about $790 more in interest. Stretching to 84 months costs about $1,590 more than the 60 month loan.
How the rate changes the total
Here is the same $20,000 loan over 60 months at three different rates. Again, these are example numbers.
| APR | Monthly payment | Total interest |
|---|---|---|
| 5% | about $377 | about $2,650 |
| 7% | about $396 | about $3,760 |
| 9% | about $415 | about $4,910 |
A few percentage points can mean a difference of more than $2,000 over the life of the loan. That is why comparing offers before you sign is worth the time.
How to figure out your own total interest
You can estimate total interest with a simple step once you know your payment:
Monthly payment × number of months, minus the amount borrowed = total interest
For the 60 month example: about $396.02 × 60 = about $23,761. Subtract the $20,000 you borrowed, and the total interest is about $3,760.
The loan calculator does this for you, and it also shows how each year's payments split between principal and interest.
Ways to pay less interest on a car loan
Choose the shortest term you can comfortably afford
A shorter term usually means less total interest. Just make sure the payment leaves room in your budget for gas, insurance, and repairs.
Compare rates before you buy
Get quotes from more than one lender before you visit the dealer. Having an offer in hand makes it easier to compare.
Put more down
A larger down payment means you borrow less, so you pay less interest over the life of the loan.
Pay a little extra each month
Extra payments that go to principal shorten the loan and cut interest. In our example, adding $50 a month to the 60 month loan pays it off in about 53 months and saves roughly $510 in interest. Ask your lender to apply extra payments to principal, and check that there is no prepayment fee. Our post on whether extra loan payments go to principal explains how.
Look at the total, not just the payment
A low monthly payment can hide a high total cost. Before you sign, look at the total interest along with the payment.
Savenello shows where your money goes each month so you can find room for extra payments. Connect your bank securely with Plaid.
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Example figures are estimates for illustration only. Your lender sets your actual terms.
Questions
How much interest will I pay on a $20,000 car loan?
It depends on your rate and term. In our example at 7% APR, it is about $3,760 over 60 months or about $4,550 over 72 months.
Is a longer car loan always more expensive?
With the same rate, a longer loan costs more in total interest, even though the monthly payment is lower. Longer loans sometimes carry higher rates too.
How is interest on a car loan calculated?
Most car loans charge interest each month on the balance you still owe. Divide the APR by 12 and multiply by your balance to estimate that month's interest.
Can I lower the interest on a car loan I already have?
Paying extra toward principal can cut the total interest. Some people also look into refinancing if rates or their credit have improved. Compare the costs and terms carefully first.