The cheaper car payment costs $2,303 more
· 6 min read
A $32,000 car with $4,000 down at 7.2% is $557.08 a month over 60 months, or $425.34 over 84. The lower payment costs $2,303 more in interest for the same car, and runs for 24 more payments.
7.2% is an example rate that makes the sums easy to follow. It is not a current rate and not a rate anyone is offering you; yours depends on your credit and the lender. This does not say which loan to take. It is arithmetic on one example, not financial advice.
What is the monthly payment on a $32,000 car?
With $4,000 down and no trade-in you finance $28,000. Over 60 months at 7.2%:
| $32,000 car, 60 months | Amount |
|---|---|
| Monthly payment | $557.08 |
| Total interest | $5,425 |
| Down payment | $4,000 |
| What the car costs in the end | $37,425 |
The payment is the number on the windshield. The last line is the one that is not: the loan adds $5,425 to the price. A car is sold the way a house is, by the monthly payment, and there are two ways to make a payment smaller. Pay less for the car, or pay for longer. The second one does not feel like paying more.
To price your own car and loan, use the car loan calculator. It is free, there is no account, and nothing you type leaves your browser.
60 vs 72 vs 84 month car loan: what the term costs
| Term at 7.2% | Monthly payment | Total interest |
|---|---|---|
| 36 months | $867.12 | $3,216 |
| 48 months | $673.10 | $4,309 |
| 60 months | $557.08 | $5,425 |
| 72 months | $480.07 | $6,565 |
| 84 months | $425.34 | $7,728 |
Stretching from 60 months to 84 takes $132 off the monthly payment. That is real money every month. It also adds $2,303 of interest and two more years of payments.
Going the other way, 36 months is $310 a month more than 60 and saves $2,209 of interest. Whether either trade is worth it depends on a budget we do not know.
How much does the interest rate change a car payment?
| Rate, 60 months | Monthly payment | Total interest |
|---|---|---|
| 5.2% | $530.96 | $3,858 |
| 7.2% | $557.08 | $5,425 |
| 9.2% | $583.96 | $7,037 |
Two points of rate is about $27 a month. That does not sound like much, which is why it gets through. Over the five years it is $1,612 more interest going up, and $1,567 less going down.
When the lower car payment is the more expensive loan
Put the higher rate and the longer term together and the payment still falls.
| Loan | Monthly payment | Total interest |
|---|---|---|
| 7.2%, 60 months | $557.08 | $5,425 |
| 9.2%, 84 months | $453.34 | $10,081 |
The second loan is $104 a month cheaper and costs $4,656 more: nearly double the interest. The payment went down and the cost went up, which is why the payment alone cannot tell you which of two loans is cheaper.
How much does a bigger down payment save on a car loan?
| Down payment | Monthly payment | Total interest |
|---|---|---|
| $0 | $636.66 | $6,200 |
| $4,000 | $557.08 | $5,425 |
| $8,000 | $477.50 | $4,650 |
On this loan, every $4,000 you do not borrow saves about $775 of interest over the five years, on top of the $4,000 itself.
What to do with the number
Put in the car and the loan you are being offered. Before you look at the monthly payment, look at the total interest. If someone then offers a lower payment, ask what happened to that number: a payment can fall because the price fell or because the term grew, and only the first of those makes the car cheaper.
What this does not tell you
- The rate you would be offered. 7.2% is an example, and car loan rates vary widely with credit, the lender and whether the car is new or used.
- Sales tax, registration and dealer fees. They are often added to the loan, and then interest is paid on them too.
- Insurance, fuel, maintenance or repairs, which are part of what a car costs and are not in any figure here.
- What the car will be worth. On a long loan you can owe more than the car is worth for a while, and this calculator cannot tell you when.
- Anything about leasing, a trade-in with money still owed on it, or paying the loan off early.
- Which loan you should take. A lower payment and a lower total are different things to want.
