Auto Loans Explained: APR, Loan Term and Down Payment
Three numbers shape almost every auto loan: the APR, the term and the amount you finance. Understanding how they work together helps you choose a payment you're comfortable with — and see the total cost behind it.
APR
The annual percentage rate (APR) is the yearly cost of borrowing, including interest and certain fees, expressed as a percentage. Your APR depends on your credit, the lender, the vehicle and the term. The Consumer Financial Protection Bureau recommends comparing rates and terms from more than one source before you commit.
Term
The term is how many months you take to repay the loan. Common terms are 36, 48, 60 and 72 months. A longer term lowers your monthly payment, but you pay interest for longer, so the total cost goes up.
Down payment
Money down (or trade-in equity) reduces the amount you finance. That lowers both your payment and the total interest you pay.
Worked examples
These examples use a $20,000 vehicle and a 7.99% APR, the example rate on our site. They leave out tax, title, license and our $521 dealer fee, and your actual rate may differ.
With $2,000 down (financing $18,000):
- 48 months: about $439 per month, about $3,089 in total interest.
- 60 months: about $365 per month, about $3,893 in total interest.
- 72 months: about $316 per month, about $4,717 in total interest.
With $4,000 down (financing $16,000):
- 48 months: about $391 per month, about $2,746 in total interest.
- 60 months: about $324 per month, about $3,461 in total interest.
- 72 months: about $280 per month, about $4,193 in total interest.
Stretching from 48 to 72 months lowers the payment by roughly $120 a month here, but adds about $1,600 in interest. Putting $2,000 more down saves both.
How your credit affects your rate
Lenders generally offer lower APRs to borrowers with stronger credit, and higher rates when credit is still being built. Even a small difference in APR adds up over several years, which is why it's worth knowing your credit range before you shop. Our payment tools let you pick your credit range to see how your estimate changes.
Working backward from a payment
If you know the payment you want, you can work backward. At a 7.99% example rate over 60 months, a payment of about $365 per month covers roughly $18,000 financed. Add your down payment and trade-in equity to see the price range to shop in — then use the payment filter on our inventory to see only vehicles in that range.
Common questions
Is a longer loan ever a good idea?
A longer term can make a payment fit your budget, but it costs more in interest and you build equity more slowly. If you choose a longer term, consider paying extra when you can — ask your lender whether extra payments go toward principal.
Should I put more money down or keep cash in savings?
A larger down payment lowers your payment and interest, but keeping an emergency cushion matters too. Find the balance that keeps your budget comfortable.
How to use this
- Decide on a monthly payment that fits your budget comfortably.
- Choose the shortest term that keeps you at that payment.
- Put down what you comfortably can — including your trade-in.
- Compare the total cost, not only the payment.
You can see an estimated payment on every vehicle in our inventory: switch to FINANCE and every vehicle shows its payment. On any vehicle, Personalize My Payment lets you set your down payment, credit range and term and watch the payment update. When you're ready, check your financing options — it won't affect your credit score.