How car loan interest works
Your monthly payment is fixed, but its make-up changes. Each month the lender charges interest on the remaining balance; whatever is left of the payment reduces principal. That is why interest is front-loaded and why the yearly bars above shrink over time.
Formula
Payment = P × r ÷ (1 − (1 + r)^−n), with r = APR ÷ 12 and n = months.
Total interest = Payment × n − P. Interest in any month = balance × r.
Worked example
Borrowing $30,000 at 7% APR for 60 months gives a payment of about $594. The first month includes about $175 of interest, the first year about $1,935, and the full loan about $5,642 — roughly $188 for every $1,000 borrowed.
What moves total interest
- Amount borrowed: interest scales roughly in proportion to the balance.
- APR: the sensitivity line above shows the effect of one point for your loan.
- Term: longer terms lower the payment but extend the time you pay interest. See the 60 vs 72 month comparison.
Assumptions and limitations
- Some loans use precomputed interest or charge fees that change the true cost; check your contract.
- Payment timing (first payment date, daily interest accrual) can shift figures slightly.
- To build the amount borrowed from price, tax, fees and trade-in, start with the car payment calculator or the tax and fees version.