Finance5 min read·March 18, 2026
How Car Loans Work: Rates, Terms, and Total Cost
Before you finance a car, understand how loan term, interest rate, and down payment affect your monthly payment and the total you really pay.
Longer terms feel cheaper but cost more
A 72- or 84-month loan lowers your monthly payment, but you pay far more interest and risk owing more than the car is worth (being "underwater"). A shorter term costs more per month but saves money and builds equity faster.
What drives your rate
- Credit score — the biggest factor; higher scores get dramatically lower rates.
- Loan term — longer terms often carry higher rates.
- New vs. used — used cars usually cost a bit more to finance.
- Down payment — more money down lowers the loan and the risk to the lender.
The 20/4/10 guideline
A common rule of thumb: put at least 20% down, finance for no more than 4 years, and keep total vehicle costs under 10% of your gross income. It keeps you from overextending on a depreciating asset.
Estimate the real cost
Use our Loan Calculator to compare monthly payments and total interest across different terms and rates before you sign anything at the dealership.