The number dealers do not lead with
Car finance is sold on the monthly payment almost exclusively. It is the figure on the windscreen, in the advertisement, and in the conversation. It is also the figure most easily manipulated, because stretching the term lowers it without making anything cheaper.
On a $25,000 loan at 9%, a 36-month term costs about $3,620 in interest. The same loan over 84 months costs about $8,700. The monthly payment falls from roughly $795 to $402, which feels like a better deal and costs an extra $5,000.
Longer terms carry a second problem specific to cars. A vehicle depreciates faster than a long loan amortises, so for much of the term you owe more than the car is worth. If it is written off or you need to sell, you pay the difference in cash.
Fees financed at the loan rate
Processing charges, extended warranties, paint protection and registration are frequently rolled into the loan rather than paid upfront. That is convenient and expensive: a $1,500 warranty added to a 60-month loan at 9% costs roughly $1,870 by the time it is repaid.
The fees field above exists so you can see this. Enter what is actually being added and watch the total move.
Compare APR, not the headline rate
The advertised rate and what you pay are often different. A dealer may offer a low rate while adding a large arrangement fee, or a manufacturer subsidy may require declining a cash discount you would otherwise receive.
Ask what the total repayable figure is. It is a single number, it is difficult to disguise, and every regulated lender must be able to state it. If the total repayable across two offers differs, the cheaper one is cheaper regardless of which has the nicer monthly payment.
A note on down payments
A larger down payment reduces the amount financed, the interest, and the period during which you owe more than the car is worth. Around 20% is a common guideline for exactly that last reason.
The counterweight is the same as for any loan: cash spent is cash unavailable. If a bigger down payment empties your emergency fund, the first unexpected expense goes onto a credit card at three times the rate.
Frequently asked questions
How is a car loan monthly payment calculated?
It uses the same annuity formula as any amortizing loan: the payment stays level while its split between interest and principal shifts over the term. Interest is charged on the outstanding balance, so early payments are more heavily weighted toward interest.
Is a longer car loan term a bad idea?
Usually. On a $25,000 loan at 9%, extending from 36 to 84 months lowers the monthly payment by about $393 and adds roughly $5,000 in interest. Longer terms also extend the period where you owe more than the car is worth, since vehicles depreciate faster than long loans amortise.
Should I roll fees and warranties into the loan?
Only if you have no alternative. Anything financed is charged interest at the loan rate for the full term - a $1,500 warranty on a 60-month loan at 9% ends up costing around $1,870.
How much should I put down on a car?
Around 20% is a common guideline, mainly because it shortens the period during which the loan balance exceeds the car's value. Do not empty an emergency fund to reach it.