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01 Loan payments

Car Loan Calculator: Total Interest Paid Explained

Calculator No. 01-6804 · Updated · Formula and assumptions shown below

Monthly payment $405.53
Total interest
$4,331.67
= Monthly payment × loan term × 12 − loan amount
Loan amount
$20,000
Input
Interest rate (APR)
8 %
Input
You enter
Loan amount ($), Interest rate (APR) (%), Loan term (years)
You get
Monthly payment ($), Total interest ($)
Rounding
2 dp

Estimate for education, not financial advice. The result follows from the numbers you enter and the formula shown. It is not a quote or an offer, and it does not include fees, taxes or insurance unless the calculator asks for them. Ask your lender for the exact figures.

A car loan calculator’s total interest paid is the sum of your scheduled loan payments minus the amount borrowed. Enter the loan principal, annual percentage rate (APR), and term to estimate the monthly payment and total interest, assuming fixed monthly payments.

Formula

The calculator first estimates the fixed monthly payment, rounds it to cents, then subtracts the amount borrowed from the sum of those rounded payments:

r = APR / 1200
n = years × 12
Monthly payment = P × r / (1 − (1 + r)−n)
Total interest = monthly payment × n − P

  • P is the loan amount, in dollars.
  • APR is the annual percentage rate entered as a percentage, such as 8 for 8% per year.
  • r is the monthly rate as a decimal; dividing APR by 1,200 converts a percentage per year to a decimal per month.
  • n is the number of monthly payments.

The payment formula assumes equal payments made monthly. The interest result uses the payment rounded to the nearest cent, which is why it may differ slightly from a calculation that keeps unrounded values throughout.

Worked Example

Using the calculator’s defaults: a $20,000 loan, an 8% APR, and a five-year term.

  1. Convert the APR to a monthly decimal rate: 8 / 1200 = 0.0066667.
  2. Convert the term to payments: 5 × 12 = 60 months.
  3. Apply the payment formula: $20,000 × 0.0066667 / (1 − (1.0066667)−60), which is about $405.53 per month after rounding to cents.
  4. Multiply the rounded payment by the number of payments: $405.53 × 60 = $24,331.80.
  5. Subtract the principal: $24,331.80 − $20,000 = $4,331.80 in estimated total interest.

Thus, the calculator’s headline result for these inputs is $4,331.80 in total interest. The final payment shown by a lender can differ by a small amount because of payment dates, daily interest, or rounding.

Assumptions

  • The interest rate is fixed for the full loan term.
  • Payments are equal, made monthly, and begin on the assumed schedule; the calculation does not adjust for actual calendar dates.
  • Interest accrues monthly at APR divided by 12.
  • Fees, taxes, insurance, optional products, and other charges are not included unless represented in the amount borrowed or rate entered.

How to Use the Total Interest Result

Enter the amount financed, not necessarily the vehicle’s advertised price. If a down payment, trade-in credit, or other amount reduces what you borrow, use the resulting principal. If those items are financed, they may increase the loan amount. Use the APR and term supplied for the specific loan estimate or disclosure rather than assuming a rate or guessing what a lender might offer.

  • Loan amount: the principal being repaid. A larger principal generally produces more interest when the APR and term are held constant.
  • APR: enter the annual percentage as a number, so 8% is entered as 8, not 0.08. The APR is an input; obtain the applicable figure from the lender.
  • Term: enter years. Five years means 60 monthly payments; a longer term means more payment periods in this estimate.

The interest figure is the estimated cost of borrowing under the model, not the full cost of owning a car. It excludes vehicle expenses and any charges not included in the inputs. The monthly payment is likewise an estimate of the loan payment alone, not a complete monthly transportation budget.

Why Loan Term and Payment Changes Matter

For the same principal and APR, extending the repayment period usually lowers the scheduled monthly payment but increases the total interest in this fixed-payment model: interest is charged over more months. Shortening the term usually has the opposite effect. This is a mathematical comparison of inputs, not a recommendation about which term to use.

Extra payments can reduce interest if they are applied to principal and the lender’s payment rules allow the balance to fall sooner. This calculator assumes only the scheduled equal payments, so it does not model extra amounts, skipped payments, late payments, or a changing rate. To estimate a revised schedule involving extra payments, the payment timing and balance calculation need to be modelled month by month.

Common Sources of Differences

  • Using the vehicle price instead of principal: the financed amount can differ after a down payment, trade-in, or items added to the loan.
  • Confusing APR with a monthly rate: this calculator expects annual APR as a percentage and converts it internally. Do not enter a monthly rate in the APR field.
  • Comparing different terms: a monthly payment alone does not show the total interest. Compare estimates using the same principal and clearly note the term and APR.
  • Rounding: the calculator rounds the monthly payment to cents and multiplies that amount by the number of payments. Actual servicing may use different rounding or a slightly different final payment.
  • Fees or add-ons: charges may affect the financed amount or the lender’s disclosed cost, but are not separately itemized here.

A common misconception is that total interest equals APR multiplied by the original loan amount and the number of years. That simple multiplication would treat the full principal as unpaid throughout the term. With a standard amortizing loan, each payment reduces the balance over time, so later interest is calculated on a declining balance.

Frequently Asked Questions

How do I calculate total interest on a car loan?
Multiply the scheduled monthly payment by the number of payments, then subtract the amount borrowed. For this estimate, use the payment rounded to cents and include all scheduled monthly payments.

Does a car loan calculator include taxes and fees?
Not unless they are included in the loan amount or another input. This calculator does not separately add taxes, fees, insurance, or optional products.

Why does a longer car loan cost more in interest?
With the same principal and APR, a longer term generally has more monthly periods in which interest accrues. The monthly payment may be lower, while the total interest estimate may be higher.

Is total interest the same as the APR?
No. APR is an annual rate entered into the payment calculation. Total interest is a dollar amount estimated across the full repayment schedule.

Why is my lender’s total different from the calculator?
The lender may use actual payment dates, daily interest accrual, different rounding, a final payment adjustment, or charges excluded from this estimate. Check the loan disclosure for the figures and assumptions that apply to the loan.

This result is an estimate, and the lender’s disclosure gives the exact figures.

Related

Formula used
in p | Loan amount | $ | 20000 | 1 | 100000000
in apr | Interest rate (APR) | % | 8 | 0.01 | 100
in yrs | Loan term | years | 5 | 0.0833 | 50
out pmt | Monthly payment | $ | p * (apr / 1200) / (1 - (1 + apr / 1200) ^ -(yrs * 12)) | 2
out int | Total interest | $ | pmt * yrs * 12 - p | 2

Each line is one input (in, sel, list) or one result (out: label, unit, formula, decimals). How the calculators work

Method: the standard loan formula for this calculation, fixed rate and monthly compounding unless stated, rounded as each result states. Not financial advice; no lender, rate or product is recommended. See formulas and assumptions, the disclaimer or report an error.

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