Car loan interest calculator

The calculator above starts with a $20,000 loan at 11.95% a year over five years, paid monthly. Change any number and every figure updates. The 11.95% is only an example rate. Use the rate on your own quote, because rates differ between lenders and between people.

This page explains what the interest figure means and shows how far it moves when you change the term, the rate, a fee or the amount you borrow. If you want the underlying formula, see how car loan repayments are calculated.

What the interest figure tells you

Interest is the price of borrowing. On the starting example you borrow $20,000 and pay back $26,663.03 over 60 monthly payments of $444.38. The difference, $6,663.03, is interest. That is about 33 cents of interest for every dollar borrowed.

Two details are easy to miss.

First, the payment is the same each month but the split inside it changes. In month one you owe the full $20,000, so interest is about $199.17 and the other $245.21 pays down the loan. By the final months the balance is small, so almost the whole payment pays down the loan.

Second, the interest is not one fixed fee added at the start. It builds up as time passes and shrinks when you reduce the balance. Anything that lowers the balance sooner, such as a deposit or an extra payment, cuts the interest.

How the term changes the interest

The term is usually the biggest lever. This table uses the same $20,000 at 11.95%, paid monthly. These are example figures, indicative only.

Going from five years to seven drops the payment by $91.86 a month, which feels like relief. But you pay $2,948.66 more in interest to get it. Going the other way, three years instead of five saves $2,765.92 in interest, but costs $219.43 more each month. The right term is the shortest one you can pay comfortably, with a buffer for months when money is tight.

How the rate changes the interest

Now hold the term at five years and change only the rate. Same $20,000, paid monthly.

Each two percentage points on the rate adds roughly $1,200 of interest on this loan, or about $19 to $21 on the monthly payment. That is why it pays to compare quotes. A lender sets your rate after looking at your own situation, so the rates in the table are not offers and nobody can promise you a particular one.

Fees count as borrowed money

Some lenders add a set-up fee to the loan instead of asking for it upfront. If a $400 fee is added to the starting example, you borrow $20,400. The payment rises to $453.27 and the total interest rises to $6,796.29. So a $400 fee costs you $533.26 over the life of the loan, because you pay interest on the fee as well.

Put the fee in the “fees added to the loan” box in the calculator to see this on your own numbers. If the lender wants the fee paid upfront, leave the box empty, since you are not borrowing it.

Under the Credit Contracts and Consumer Finance Act, a lender must give you a disclosure statement that sets out the amount owing, the interest rate, the repayments and the fees. Read it before you sign. Consumer Protection explains what it should contain.

A deposit saves interest twice

A deposit or trade-in reduces the amount you borrow, and every dollar you do not borrow is a dollar that never earns interest. Take a $25,000 car at 12.95% over five years, paid monthly. This is another example rate.

• No deposit: payment $568.19, total interest $9,091.23.
• $2,500 deposit: payment $511.37, total interest $8,182.11.
• $5,000 deposit: payment $454.55, total interest $7,272.98.
• $10,000 deposit: payment $340.91, total interest $5,454.74.

A $5,000 deposit saves $1,818.25 in interest, which is more than a third of the deposit again. Use the “Try it” tip next to the calculator result to see this on your own loan.

Weekly, fortnightly or monthly

Paying more often reduces the interest a little, because the balance comes down sooner. On the $20,000 loan at 11.95% over five years, monthly payments cost $6,663.03 in interest and weekly payments cost $6,588.80, a difference of $74.23. It is worth having, but it is small next to the effect of the rate or the term. The weekly car loan repayments calculator shows the weekly figures in more detail.

Flat rates and add-ons

Some quotes, especially on older or cheaper cars, state a flat rate. A flat rate charges interest on the original amount for the whole term, even though you owe less as you pay. A flat 8% is a very different cost from a reducing 8%. This calculator uses a reducing rate, which is the standard way a loan is worked out. If a quote does not say which kind it is, ask. Then ask for the total amount you will repay.

Credit insurance, extended warranties and similar add-ons can be financed too. They raise the amount borrowed and so the interest. Lenders must check that any insurance sold with the loan is suitable and affordable for you, and you can ask what it costs and whether you need it.

Getting the interest down

You cannot always change the rate, but you can usually change one of these.

• Borrow less. A cheaper car or a bigger deposit has the biggest effect.
• Take a shorter term. Check the payment still fits your budget with room to spare.
• Compare quotes. The same person can be offered different rates by different lenders. If you want to see offers from a panel of lenders from one application, our check is a referral service, not a lender, and uses a soft credit check. Nobody can promise approval, and lenders decide case by case.
• Ask about extra payments. Many loans let you pay extra, but some charge a fee for paying off early. Read about it in car loan early repayment fees.

Limits of any calculator

This page and the calculator give estimates from the numbers you type in. They are not a quote and not an offer of credit. They do not know your fees, your insurance or your lender’s rounding. Use them to get close, then ask for real figures in writing. Details of how this site works are on the disclosure page.

Sources

• Consumer Protection NZ: loan for your car for disclosure statements, fees and what lenders must do
• Sorted for borrowing and budgeting basics
• Commerce Commission for the rules lenders must follow