Skip to Content loading...

Not a member yet?

Listerhill Credit Union is a nonprofit financial cooperative improving lives in our community.

If you live in Alabama, Georgia, Mississippi, Florida, or Tennessee, you are eligible to become a member. Depending on your individual eligibility, we may require membership into an approved association at no cost to you.

You can also qualify for membership by being a family member of a current or potential Listerhill member.

With only $5, you can join Listerhill today and start taking advantage of a lifetime membership.

Auto Calculator

How Are Auto Loans Calculated? (And Why You Should Care)

Learn how auto loans are calculated and why knowing the reason behind it is essential.

Editorial Note: Articles published are intended to provide general information and educational content related to personal finance, banking, and credit union services. While we strive to ensure the accuracy and reliability of the information presented, it should not be considered as financial advice and may be revised as needed.

When shopping for an auto loan, you know that you want the best rate and the lowest payment you can get. But do you ever stop to think about how auto loans are calculated? If not, it's time to have that conversation! There are calculations behind the amount and various factors that help determine what it should be.

Before looking further at how auto loans are calculated, it's important to understand the factors that go into this calculation:

  • Vehicle price
  • Sales tax
  • Trade-in value (if applicable)
  • Down payment (if applicable)
  • Dealer fees
  • Rebates or incentives (if applicable)
  • Annual percentage rate (APR)
  • Auto loan term

How Are Auto Loans Calculated?

Calculating the cost of an auto loan involves following a mathematical formula. It might not be as simple as 1+2=3, but the concept is the same!

If you take the factors listed in the previous section and plug them into the right spot in the equation, you will get your monthly auto loan rate. There are auto loan calculators that can give you an idea of this amount, but understanding the how behind the calculations is essential as well.

First, it's important to note that an auto loan is an amortizing loan. This means that you pay back the amount of your loan plus interest. Your payments are the same each month and include the principal balance plus interest. Each payment you make will be the same; however, as you make more payments, you will pay more towards the principal and less toward interest.

Again, you can choose to use a calculator or rely on your lender to calculate your auto loan payment, but it's good to understanding the mechanics behind how and why auto loans are calculated the way they are.

Importance Of Knowing How Auto Loans Are Calculated

Now you may still be wondering why this even matters. Here's the deal.

You should understand how various factors impact your auto loan so you can make the best choices regarding your down payment, car prices, add-ons to your purchase, etc.

Auto Loan Term

For example, you might think that stretching your term out to 96 months is a good idea without knowing that the longer your term, the higher your interest rate and the more you'll pay over the length of your loan. Without this information, you could make the blind decision that you need to make your loan payment as small as possible without looking at the whole picture!

Loan #160 Months
Loan Amount$25,000
Interest Rate3.11%
Monthly Payment$555
Total Cost of Car Loan

$26,620


Loan #272 Months
Loan Amount$25,000
Interest Rate3.11%
Monthly Payment$381
Total Cost of Car Loan$27,437

Auto Loan APR

Another example is not understanding how much your APR can impact your monthly payment. That's why you must get your APR down as low as possible before you get an auto loan. It can save you thousands of dollars throughout your loan term!

Loan #13.11% APR
Loan Amount$25,000
Loan Term60 Months
Monthly Payment$450
Total Cost of Car Loan$27,026


Loan #210.11% APR
Loan Amount$25,000
Loan Term60 Months
Monthly Payment$533
Total Cost of Car Loan$31,952

Auto Loan Principal

One final example relates to what makes up your principal loan amount. You might only consider the sticker price of the car, but the principal loan amount is the sticker price + fees + taxes + maintenance or insurance add-ons, which can easily increase your principal loan amount by a few thousand dollars.

The comparison below demonstrates how much an additional $5,000 can impact your monthly payment and total cost of the car loan.

Loan #1$20,000
Loan Term60 Months
Interest Rate3.11%
Monthly Payment$360
Total Cost of Car Loan$21,621


Loan #2$25,000
Loan Term60 Months
Interest Rate3.11%
Monthly Payment$450
Total Cost of Car Loan$27,026

Understanding Auto Loan Calculations

Now that you’re aware of why you should care about how auto loans are calculated don't stop there! Before you get your next auto loan or refinance your current vehicle, you want to be fully knowledgeable about the ins and outs of auto loan financing so you can get the best deal and make the right choices.

Here are additional resources you can refer to that provide helpful information about auto loans:

default icon for Solution Finder Intro
What can we help you with? *
default icon for Checking For Mature Members
What are you borrowing for?
default icon for Checking For Mature Members
Vehicle Options
default icon for Checking For Mature Members
Home Options
default icon for Carrolls
What are you saving for?
default icon for Carrolls
How old are your kids?
default icon for Cord
Which of these banking options are you interested in?
default icon for Cord
How old are you (or your child)?
default icon for Cord
How old are you?
default icon for Cord
What kind of account are you looking for?
search popup background

What are you looking for?

Common Links

Frequently Asked Questions

  • What are some factors to consider when choosing a rewards credit card?

    Determine whether you prefer cash back, travel points, or other reward types. Then, explore how and when reward points accumulate, if there are spending caps, and how easy it is to redeem your rewards. Financial institutions like credit unions tend to offer great rewards credit cards.

  • How can I compare credit card offers before making a decision?

    Carefully review rewards programs, like cash back or travel miles, when comparing credit cards. Also, consider the rewards rate, interest rates, annual fees, and any additional benefits the card includes.

  • What are the benefits of choosing a credit union's credit card compared to others?

    Our credit cards reward you for making purchases. They feature competitive interest rates and fewer fees than traditional banks. Members benefit from personalized customer service. We work closely with you to understand your financial situation and needs.

  • What if I prefer to make my payments through a pre-authorized automatic payment arrangement (ACH)?

    Please contact TruHome at 844-203-3642 to set up automatic payments or visit here to set them up yourself.

  • What if I prefer to make my payments through the Listerhill Mobile Banking app or Online Banking?

    Unfortunately, when the transfer occurs, mortgages will not be displayed on our app or in online banking, but we are working to bring that functionality ASAP.

    In the meantime, please visit here to view all mortgage information and payment options.