Part of our guide to Car Payment Calculator
Dealers work from a monthly payment because it is the number buyers respond to. This runs that conversation backwards — from the payment you can afford to the car it genuinely buys.
The car price a monthly budget supports once interest, sales tax, fees, your deposit and any negative equity are taken out. It is usually well below what "budget × months" suggests, and the gap is the point.
How the calculation works
The car payment calculation, inverted. First, the budget is converted to an amount financed by dividing by the payment-per-dollar-borrowed:
k = r / (1 − (1+r)⁻ⁿ) financed = budget / kThen the price is separated from the extras. Sales tax is charged on the price less the trade-in allowance, so it is a rate on the price and the relation stays linear:
financed = price(1 + t) − tradeIn·t + fees − down − netTrade
price = (financed + tradeIn·t − fees + down + netTrade) / (1 + t)The result is then recomputed forwards, so every figure shown is self-consistent rather than a mix of the inverse and its inputs. The test suite checks the round trip: the price it returns, financed over the same term, must reproduce your budget.
Negative equity, which is the part that catches people
If you owe more on your trade-in than it is worth, the shortfall does not disappear. It is added to the new loan.
You then start the new loan already owing more than the car is worth, which makes the next trade-in worse — and this is how people end up several cars deep in a debt that never resolves. The calculator shows the rolled-in amount explicitly when it applies.
How to read the result
Payment is not cost. Insurance, fuel, tyres, servicing and registration are all on top. Insurance in particular varies by vehicle far more than buyers expect — get a quote on the specific car before agreeing to anything.
Longer terms are not more affordability. A 72 or 84 month loan lowers the payment and raises the total interest, and extends the period during which you owe more than the car is worth.
A bigger deposit moves the price more than a longer term does, and costs you nothing in interest.
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This is an estimate for general information, not financial advice — see our disclaimer.
Frequently asked questions
Why is the car price lower than my budget times the number of months?
Because interest, sales tax and fees all come out of the same budget. Only part of what you pay each month buys car.
What is negative equity?
Owing more on your trade-in than it is worth. The shortfall is added to the new loan, so you finance part of the old car with the new one — and start the new loan already underwater.
Should I take a 72 or 84 month loan to afford more?
It lowers the payment and raises the total interest, and you spend far longer owing more than the car is worth. If the car only fits over 84 months, it is the wrong car.
Does this include insurance and fuel?
No. Those are real monthly costs on top of the payment, and insurance in particular varies enormously by vehicle. Get a quote before committing.
Is the sales tax charged on the full price?
In most US states the trade-in allowance is deducted first, which is what this assumes. A few states tax the full price — check your state if the trade-in is large.
Sources
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