How Car Loan Amortization Works
Most auto loans use fixed monthly payments calculated so you pay equal amounts every month. Each payment first covers the interest that accrued during that period, with the remainder reducing the principal. Because the balance shrinks each month, the interest portion decreases over time while the principal portion grows — that's amortization.
Choosing a shorter loan term means higher monthly payments but far less total interest. If you receive a bonus or have extra cash, making additional principal payments can shorten your loan significantly without refinancing.
Frequently Asked Questions
As of 2025, average new car loan rates range from roughly 5–8% APR depending on credit score and lender. Credit unions often offer lower rates than dealership financing.
A larger down payment reduces the principal and thus total interest paid. It also lowers your monthly obligation, which can help if cash flow is tight. Aim for at least 10–20% down.
Yes — enter the buyout price as the principal, your expected loan rate, and the term you plan to finance. The amortization schedule works the same way.