Car Loan Interest and Monthly Payments Explained

February 17, 2026 |

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A $28,000 car loan at 5.9% APR for 60 months has an estimated monthly payment of $541 and costs approximately $4,441 in total interest. The loan term you choose changes both numbers significantly. Here is the math.

The car loan payment formula

Car loans use the same amortization formula as mortgages:

M = P x [r(1+r)^n] / [(1+r)^n - 1]

Where:

M = estimated monthly payment
P = loan principal (amount financed)
r = monthly interest rate (annual rate / 12)
n = total number of monthly payments

This is a fixed-rate amortization. Each payment covers some interest and some principal. Early payments are mostly interest. Later payments are mostly principal.

Worked example: $28,000 at 5.9% APR

Loan amount: $28,000. Annual rate: 5.9%. Monthly rate: 5.9% / 12 = 0.4917%, or 0.004917 as a decimal.

For a 60-month (5-year) term:

M = $28,000 x [0.004917 x (1.004917)^60] / [(1.004917)^60 - 1]

M = $28,000 x [0.004917 x 1.3424] / [1.3424 - 1]

M = $28,000 x 0.006597 / 0.3424

M = $28,000 x 0.019268

Estimated monthly payment: approximately $540

Total paid over 60 months: $540 x 60 = $32,400. Total estimated interest: $32,400 - $28,000 = $4,400.

How loan term affects your payment and total cost

Shorter loans have higher monthly payments but lower total interest. Longer loans are more affordable each month but cost more overall.

Here is the same $28,000 loan at 5.9% APR across three terms:

Term	Estimated monthly payment	Total interest paid	Total cost
36 months	$851	$2,631	$30,631
48 months	$656	$3,499	$31,499
60 months	$540	$4,400	$32,400

Going from a 36-month to a 60-month term saves approximately $311 per month. But you pay an estimated $1,769 more in total interest over the life of the loan. The 36-month loan costs less in total but requires a larger monthly budget.

How a down payment reduces total cost

A down payment reduces the loan principal, which reduces both your monthly payment and total interest.

On a $32,000 car with a $4,000 down payment, you finance $28,000 (the example above). Without a down payment, you finance the full $32,000 at 5.9% for 60 months:

$4,000 down: estimated $540/month, approximately $4,400 total interest
$0 down: estimated $617/month, approximately $5,029 total interest

The $4,000 down payment saves approximately $629 in interest over 60 months, on top of lowering every monthly payment by $77. Larger down payments also make it less likely you will owe more than the car is worth (known as being “upside down” on the loan).

How credit score affects your rate

The APR you receive depends heavily on your credit score. Here are approximate average rates for new car loans (2025 data):

Credit score range	Approximate APR
750+ (Excellent)	5.0%–6.0%
700–749 (Good)	6.5%–8.0%
650–699 (Fair)	9.0%–11.0%
Below 650 (Poor)	12.0%–18.0%+

On a $28,000 loan for 60 months, the difference between 5.9% and 11% APR is significant:

At 5.9%: estimated $540/month, approximately $4,400 total interest
At 11.0%: estimated $608/month, approximately $8,502 total interest

That is an estimated $4,102 more in interest over 5 years. A higher credit score is one of the most effective ways to reduce the total cost of a car loan.

Key takeaways

Car loans use the standard amortization formula; each payment covers interest and principal
A $28,000 loan at 5.9% APR for 60 months costs an estimated $540/month and approximately $4,400 in total interest
Shorter loan terms mean higher monthly payments but less total interest
A down payment reduces both your monthly payment and total interest paid
Credit score differences can add thousands in estimated interest over the loan term

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