Your car payment depends on three things: the amount you finance, the APR and the number of months. At the dealership, you have some say over all three.
The Federal Reserve's figures make a realistic starting point. For new-car loans from finance companies in June 2026, the average amount financed was $41,705. The average term was 67 months, and the average rate 6.3%. The examples below use that loan.
Start with the amount you'll really borrow
The loan amount box wants what you'll owe on day one, not the sticker price. Build it up like this:
Taxes, title and registration fees are set by your state and local government. The Consumer Financial Protection Bureau (CFPB) points out that you can't negotiate those. Dealer charges are another matter: preparation, document and delivery fees, and markups over the sticker price, are all negotiable.
Add-ons such as service contracts, GAP insurance and credit insurance are optional. You don't have to buy them, and if you do, the price is negotiable. Financing them raises both your payment and the total you repay.
Four terms for the same car
Here's the average loan over four term lengths. Only the number of months changes:
| $41,705 at 6.3% | Monthly payment | Total interest | Total of payments |
|---|---|---|---|
| 4 years (48 months) | $985.19 | $5,584 | $47,289 |
| 5 years (60 months) | $812.10 | $7,021 | $48,726 |
| 6 years (72 months) | $697.09 | $8,486 | $50,191 |
| 7 years (84 months) | $615.27 | $9,977 | $51,682 |
Stretching from four years to seven cuts the payment by $369.92 a month. It adds $4,393 of interest and three more years of payments.
The CFPB sums up the trade-off. A shorter term lowers the loan's total cost; a longer one lowers the payment but costs more interest.
No quote yet? In the Fed's May 2026 survey, banks' most common rates on 72-month new-car loans averaged 6.97%. Lenders base each rate on a number of factors, so treat that as a placeholder until you have an offer.
A long loan keeps the balance high for years
The CFPB warns that a longer loan puts you at risk of negative equity. That means owing more on the car than it's worth, so selling it wouldn't clear the loan.
Still owed after three years of payments
$41,705 borrowed at 6.3%, by loan term
Three years into the seven-year loan, you'd still owe $26,045. On the four-year loan, only $11,429 would be left.
Set the balance against what the car would fetch. For a car you own now, the CFPB suggests online guides such as Edmunds, Kelley Blue Book and NADA Guides. To project a new car's value, the car depreciation calculator takes any yearly rate you choose.
Same car, five different deals
Small changes in the finance office move the total more than the payment suggests. Each row changes one thing from the average six-year loan:
| Six-year loan | Amount financed | Rate | Monthly payment | Total of payments |
|---|---|---|---|---|
| Average loan, nothing added | $41,705 | 6.3% | $697.09 | $50,191 |
| Plus $2,500 of add-ons | $44,205 | 6.3% | $738.88 | $53,199 |
| Rate marked up one point | $41,705 | 7.3% | $717.05 | $51,628 |
| Plus $4,000 of negative equity | $45,705 | 6.3% | $763.95 | $55,005 |
| With $5,000 more down | $36,705 | 6.3% | $613.52 | $44,173 |
The $2,500 of add-ons ends up costing $3,008, because you pay interest on them for six years.
A rate one point higher adds about $20 a month, or $1,437 over the loan. And $4,000 of negative equity from your old car costs $4,814 once it's rolled in.
Money down works the other way. An extra $5,000 cuts what you repay by $6,018, since you also skip the interest on it.
Why the dealer's rate may be higher than your bank's
With dealer-arranged financing, the dealer sends your application to lenders. The CFPB says most dealers contact roughly five and pick one loan to show you.
Dealer rates are generally higher, according to the CFPB. The dealer adds interest to the lender's "buy rate" to pay for arranging the loan. The one-point row above shows what such a markup can cost.
Your best defense is a preapproval from a bank or credit union before you shop. The CFPB notes that it gives you a loan quote to compare with other offers, including the dealer's.
Extra payments help only on simple interest
Simple interest, which the CFPB calls far more common, is charged on the balance you still owe. Pay extra, and the balance and the interest both shrink.
With precomputed interest, the interest is added to the loan at the start and split across the payments. If you plan to pay early, that leaves you paying more than a simple-interest loan would.
This calculator assumes simple interest, charged monthly on the balance. Check your contract before you count on the savings the extra-payment field shows.
Already locked into a high rate? The car refinance calculator tests whether switching lenders pays. Still choosing a car? The car affordability calculator works back from the payment you can manage.
Sources
- CFPB, What things can I negotiate when shopping for a car or auto loan? (last reviewed August 28, 2023)
- CFPB, What is the difference between dealer-arranged and bank financing? (last reviewed November 8, 2022)
- CFPB, What's the difference between a simple interest rate and precomputed interest on an auto loan? (last reviewed January 30, 2024)
- CFPB, Auto loan answers: key terms (loan term, negative equity)
- Federal Reserve, G.19 Consumer Credit, Terms of Credit (release of September 8, 2026)