Car Loan Interest Explained (The Easy Way)

I’m Jason with the honest finance
Channel and today I want to talk about car loan interest rates if you just came
across this content give the video a like and feel free to subscribe to my
channel if you want to learn more about financial subjects now on to car loan
interest the interest that you’re paying on your car is actually really easy to
understand car interest rates work the same way as other interest rates you’ve
just got to understand the payment schedule in order to know more about
your car loan than most of us do if you want to know more about buying a car
check out my other video on the five biggest mistakes of buying a car this
video is just about the interest rates so let’s pretend that you buy a car at
your local dealer for $22,000 and after taxes and fees and all that stuff the
total amount ends up costing you $24,000 that you’re gonna be financing and let’s
say that you’ve got good credit so you end up with an interest rate of 3% and
you decide that you want to do the loan for 60 months you’re gonna be paying
four hundred and thirty one dollars a month on that loan for sixty months now
how did I get that number it’s really easy you just have to look up a payment
calculator online plug in a few numbers and you’re done
I’ll show you really quick on a loan app on my phone the app is literally called
loan and all you do is you just plug in the numbers twenty four thousand at
three percent over sixty months or five years in the case of this app now take a
look down here at the total interest you’re gonna be paying on that loan
looks like you’ll pay eighteen hundred and seventy five dollars on a three
percent loan on that car that’s a lot of money to be spending on interest and
that’s a really low rate now let’s look at the payment schedule
this one’s really useful because it’s gonna break down the amount of money
that you’re spending on interest and principal on a monthly basis throughout
the term of the loan so from this information you’re gonna be paying three
hundred and seventy one dollars your first month in principle and sixty
dollars in interest now look at month twelve you’re now paying three hundred
and eighty two dollars in principle and fifty dollars in interest so why are
these numbers getting better over time this is happening because as you pay
down the principal on your loan you don’t owe as much on it anymore and the
three percent rate is just charging you interest on what you owe so as you Oh
less you pay less an interest it’s really not very complicated it’s
seriously not rocket science I don’t want to over complicate things with
fancy math formulas I just want to show you an easy way of figuring out how much
interest you’re paying on your car loan this is how I do it and I do it for all
different types of loans whether it be a house a car a toy
whatever I’m financing I just plug in these numbers and I can figure out if I
can afford it or not it’s a really good idea to know how much you’re paying an
interest on a loan so that you can figure out how much you can truly afford
and how much money and interest you’re gonna be throwing away and one more
thing you really want to avoid getting a loan for longer than 60 months because
generally speaking an auto loan over 60 months is probably gonna cause you to go
upside down in your car loan so what is upside-down mean it’s really simple it
just means that you owe more on your car then it’s actually worth so let’s say
that the car you paid $24,000 for was only worth $16,000 at the end of two
years well if you still owe $18,000 at that same point because you decided to
do some stupid 84 month loan then you’re now down $2,000 on that car meaning
you’re upside down in your car loan also keep in mind that interest rates are
typically higher the longer you have the loan for so if the average 60 month loan
is 3% then an 84 month loan is probably going to be about 5% interest so you’re
gonna be paying more an interest for the car and you’re more likely to end up
upside down in the car – please be smarter with your money you don’t have
to do what the average person is doing with their car loan
apparently the average car loan is for 68 months at 4.2 percent on a loan
that’s $30,000 so that means that most of us are definitely ending up upside
down and we’re not following any of these steps hopefully you learned
something today I’m Jason with the honest finance channel feel free to
subscribe if you’re into this kind of information or at least give the video
alike that’s all

100 comments on “Car Loan Interest Explained (The Easy Way)”

  1. Carlos Zavala says:


  2. MrTee12 says:

    Thx for the video. I'm currently negotiating a 2017 car at 26,200. My credit union pre-approved me at 2.49 for 60 months. I may even consider 48 months since the interest will be lower.

  3. Full Throttle Life Clothing says:

    Question for you for auto loan pay offs. Hypothetically I have a loan on a car that’s 20,000$ and I want to trade it in. The car is valued at 10,000$. Let’s say I started with an original 60 month loan and have paid a year worth, now I have 48 months left. If I trade the car now, will the interest of the 48 months not count and my payoff will be significantly less? Because the negative equity is being paid off by the dealer and rolled over onto the next loan. How does this all work?
    I appreciate any help

  4. Josh Huber says:

    Do they have the app for iPhone or iPads

  5. Josh Huber says:

    What does the icon look like

  6. Josh Huber says:

    The one I found is car loan

  7. Ninja Man says:

    As a first time buyer $49K loan for 83mo @ 8.89% I definitely screwed myself with my new truck on saving anything but I at least have a secure and steady income and can pay off the principle within that time, my question is if i do pay off the principle well before the end of the term what happens to the interest?

  8. Honest Finance says:

    Here’s a link to my Car Buying Playlist if you wanna watch more 🙂

  9. Kebiño Tv says:

    Thank You Sir!

  10. Thomas Haas says:

    I can afford it = I wrote a check and paid for the whole thing right upfront. I love my car with no payments.

  11. dperez398 says:

    I know you specifically avoided formulas but if you could help me out there it’d be super helpful. I understand how to calculate the interest column, for example month 1 it would be 24,000 x 0.03 / 12 = 60. How does the principal column get calculated though? I’m trying to understand what relationship that number has to the other numbers.

  12. solid snake says:

    I always buy a car in full.
    Never ever finance a car

  13. Stinger-1 Harmony says:

    Im addicted to ur vids lol. Question.. is it better to rent cars instead of buying?

  14. Yun Feng Zhu says:

    Nice video and very informative.

  15. pocket change says:

    Would you stay with a company where you pay a higher monthly premium at a lower interest or do you pay more in interest and lower monthly premiums? …or should I get a new car?

  16. Aurochi 93 says:

    I bought a Camaro SS which cost me 36,000$ after taxes. I dont have the best credit (mid high 600's) but Statefarm is charging me 11,000$ of interest on a 48mo loan. So now I basically have a 47,000$ Camaro that's only worth 25,000$ as a trade in. I've never gotten an interest rate anywhere near that high with any of my previous cars and Statefarm basically told me they cant do anything about it. I've only had the car for 6 months, if I trade in, I'm basically losing 20k. What should I do?

  17. Raiju7 says:

    would you stop lunging at the camera. calm down

  18. The fearless Kibaarka says:

    Watched mostly all of your videos really I learned more

  19. Marcheur de Planète says:

    ahahah !!! USA and the "free" market.
    USA : $24,000 with 3% rate = $1.874.91
    How is that possible ?
    24,000 * 3% = 720
    That should the cost of your loan. Instead it's 1.874.91

    Let say you get a loan for one month (24,000/60=400), so 3% on 400 = 12
    So you should pay $12/month. On 60 month then you should pay 12*60=720

    Instead you pay $1,874.91 (which is 3% on $62,497)
    And you if divide $1,874.91 by 60 (month) the real cost of your loan is $31.24/month, instead of $12 ($720/60)

    In France : 24,000€ with a 3% rate = 720€ interest.

    Why ? because in France you pay the loan on the total lan amount. The bank (or the financial company) won't multiple your interest by an unknown number. Which is not explained here.

    I don't know how you do math in the USA, but 3% of 24,000 is still 720. I call that a robbery. Like your health care system, you pay super mega high premium for nothing. Amazing !!!!

  20. Hugo Lizardi says:

    Is there any way I can email you or send you a photo? Essentially my auto payment interest rate is different every month. Sometimes it’s higher than other months.

  21. Rafael Artiga says:

    Thank you for your videos!

  22. Prince Revolver says:

    Thanks for the video.

  23. Miguel Eguigure says:

    How can I pay it off quicker,can I pay just the principal if I pay extra

  24. Melody Fraley says:

    THANK you! I've had 3 people try and fail to explain to me what you just helped me understand in less than 5 minutes! Good stuff dude 🙂

  25. bee Lover says:

    I have a 2017 SRT Charger 392 bought with 5k miles for 42 thousand I have bad credit do to a bad marriage and filed chapter 7 about 9yrs ago,well I put down 18 grand 7yrs at about 16 percent Interest rateI paid 4 months of car note,I have 30 grand to pay off that’s including taxes and warranty,should I just pay it off because the interest rate is so high.

  26. Jab 2 Win Finance says:

    The minute you own a “cash car” is the minute you can start paying yourself a payment @ 0% APR. I wonder what you could do with this savings? Get a better car? 🤔 My experience is people can’t sit on that much cash nor do they want to drive beaters for a brief amount of time while they build up. It’s the opposite for me. I love parking my ‘06 Lancer by all the $300-$500 per month payment cars at the grocery store!😂 Another benefit you have is you only have to pay half the insurance payment (liability only). Pending you know how to drive I guess.

  27. working shlub says:

    think of it this way….say you make 45k a year…you just spent half years salary on a car…if you cant pay cash for whole thing cant afford it…this is how you live paycheck to paycheck.

  28. peachcado sunshine says:

    What do I do if I’m already in a loan situation like this, how do I get out, do I trade my car in?

  29. Devil- Tovar G says:


  30. Keanu Triguero says:

    I’m financing a 40k car on a 6% and the reason it got to 40k because I trade in my previous car that had about 7k negative equity. Is this good or bad?

  31. master of all trades says:

    Most of us have comp insurance so if you accidentally getting an accident you just helped your insurance company out by making extra payments. You're welcome in advance

  32. Jose says:

    It occurred to me that spending $500 a month on payments if I make a regular payment of $335 and an additional payment of $165 to go only towards principal, in theory it should save me money on the next round of interest on the now decreased principal. Would this be a wise way to use those $500 a month?

  33. Financially Indypendent show Daniel Reyes says:

    Hey Jason….What if I got a loan for 20%??

  34. Edgar Grimaldo says:

    What if I’m 22 years old and want to buy a used mustang for $18,000. I want to finance it for 72 months, only because I want a low monthly payment plan. I figured when I’m done with college in two years I can increase my payments to finish paying it off before the 72 months. Is that a smart move?

  35. Shock Modding says:

    I want a used 2016 Chevy Malibu for $12,249. I like the car, I want to save up at least $4000 and put down 3500 so I have 500$ left to myself. I want to finance it for 36 months smart move? I have no credit so I don’t know how high my interest rate will be. and I don’t have my drivers license yet just my permit. my road test is in April, so any advice? Thanks

  36. rsx123 says:

    I have no credit I literally just got a credit card in my mid 20s because no one really told me how important it is (my fault really) Anyway I have no credit history and I just got approved for a 20% interest on a car loan. Is that normal with no credit? If it builds my credit fast I might do it if that's normal. The car cost about 20% of my yearly wage after tax.

  37. J B says:

    Also, do car dealers pull your salary information or is it all about credit score?

  38. Kat Trina says:

    I am strugglin to pay my 2014 car off. I bought my lease out, lost my job, hurt badly in car accident, barely get disability, its distressing.I am thinkin i should sell it and get a old car but so scared of an old car. Any suggestions? Can't work either.

  39. Veloz Veloz says:


  40. jean lenor says:

    So its like a mortgage? The more you pay towards the principal, the less interest you pay.

  41. ArcTic_F0x says:

    I have a credit score of about 730. And my Interest rate is at a 10% with navy federal, and a 12% with usaa. I’m flabbergasted. Please tell how or why they gave me these numbers?

  42. Nikki Velazquez says:

    Very helpful! I shared the video with a friend who doesn't understand interest rates at all.

  43. Brian Waller says:

    Fun fact, make bi weekly payments and youpay less interest overall and your 60 month schedule drops to 52 simply by making bi weekly payments. Add extra money and loan will be paid off even faster and even less interest

  44. Thomas Dumais says:

    This seems like a good video to show either jr high or high school students.

  45. koolaid4315 says:

    I recently purchased a vehicle for 6 years. If I increase my monthly payments and have them to apply the extra to principal will I still be upside down at the end?

  46. koolaid4315 says:

    I recently purchased a vehicle. But last year I Co signed on a loan for my daughter. Well actually the truck is in my name. I need to refinance. How do I refinance?

  47. Daniel Garcia says:

    What's your thought on 0%

  48. Terminator T-X3 says:

    Isn’t it always better to have the lowest monthly payments and have an opened loan so you can pay off more when you want?

  49. wild wolf says:

    I have a question for you and I'm going to reference a calculator I found online.
    I just financed $12,582 @ 28% APR (Yes I know that is absolutely horrible) for 72 months (Yes I know this is even worse) on March 20th. My payments are $366 per month but my goal is to pay this thing off in 2 years (and hopefully paying much less than 28%.) Its a simple interest loan. According to the calculator I pasted, if I start this week paying $100 per week in addition to the $366.68 (So the formula would be week 1 pay $366.68, and pay an additional $100.00, weeks 2 – 4/5 pay 100 & repeat), I can pay the loan off by 04/04/2021, and only pay $3,292 in interest as opposed to paying $13,818.96 in interest. Do you think this is accurate? Is there some formula i'm missing?

  50. Jason Toth says:

    What I’m wondering is, where is the $60 of interest coming from. Because that’s not 3% of 24,000. So how did the $60 show up

  51. Isaac Amaya says:

    Thank you so much I’m 19 and this is so informative

  52. greggilliam2nd says:

    Helpful info. But maybe stop with the head nod at the start of every cut.

  53. San Ansa says:

    if you took out a 5 year car loan, will you save money if you pay it off faster than 5 years? Or do you still have to pay the interest that you agreed to pay with the original terms of the loan you signed for?


    What if you pay a month early…instead of paying your bill on the 28th of every month, you instead pay on the 1st…does that change anything?

  55. Rj says:

    What app are you using ?

  56. Texas Patriot says:

    Disclaimer: I know what i did was retarded.

    Loan: $15,761
    APR: 18% ( crap credit )
    Monthly payment: $360~
    Loan Company: Ally

    First two months I payed $500 on the loan.
    Didnt see the extra money touch the principle.
    the extra money was just carrying over to the next month
    Started paying minimum.

    im at my 5th month and $1800 in. $1140 has gone toward finance charges and $660 toward principle. Doesnt make sense does it? What can I do to fix it?

  57. TrueGamerBboyJH says:

    Thanks for the video

  58. elizabeth liz says:

    i tried looking for the app but had no sucess

  59. Jason Cruz Ramirez says:

    I’m 19 years old. I have no credit what so ever and I have 1k right now. How can I start? I’m trying to get a USED Mustang GT.. please reply and help me out anyone please

  60. Miguel Harari says:

    Very nice video!!! Can you please clear out a doubt I have? Let’s asume I finance a car for x amount of time at the end of one year I have some extra money, like $5000. If I tar those 5k and make a payment in advance will I be paying principle only or principle and interest? And if the answer is principle only , this means that I can finance a car for a long term of time just to have small monthly payment but I can “cancel” payments as fast as I want without actually paying interest?? (Of course the ones that are not random payments they do have interest) thankyou so much in advance for your time to answer me!!!

  61. CHOPPEDCHEEZ says:

    Liked and subbed
    Thanks for the great insight.
    I have a question though. If you get a loan for 20,000 and your monthly payment is 400$ a month but you pay 10,000$ the first month, is there any penatly? Is it recommended or should you stick with the monthly payment amount?

  62. P Murt says:

    For those who want the formula

    Car price 20,000
    (I.R) Interest rate 3%=3/100=0.03

    To calculate the total value of the car multiple car price by IR
    20,000 x 0.03 =600

    Not including the tax ( you can easily get that by checking your provincial sales tax rate and adding that number to the net value)
    Total value of car (before tax) = 20600

    If financing for 60 months
    Divide net value by total amount of months the car is being loan for, in this case 60 months


    $343.33 is going to be the monthly payment

    Hope this help anyone how is trying to understand the car loan situation much more profoundly.

  63. Jesus 97 says:

    People think that 84 month loans are ok only because they get that “$300” a month target but end up paying twice the original amount of the car once it’s finished.

  64. T.E.M. 4491 says:

    Why did the dealership where I bought my car for $23,850 at a 3.5% interest rate for 60 months give my loan to another bank I've never heard of?

  65. Hidden Fees Of Life says:

    Can’t find app I have a iPhone 8

  66. Lace KeVine says:

    What about if they say 0% interest rate for 72months? And u have no credit and they say they can still get u with lower interest rates? Is that possible?

  67. Osman Cruz says:

    Hello, my name is osman and i was wondering if your are aware of the Usury law and if 21% is legal in Maryland

  68. Craig Willis says:

    i'm getting $1740 on the Total Interest Rate, how exactly are you getting $1874.91?

  69. Javi's reef says:

    I have a $20,000 loan at 5.49% with a monthly payment of $328 for 72 month but every week I will transfer $50.00 from my checking account (same bank) but I have noticed that the bank take about $20 from that weekly $50 towards the interest . I feel like they are screwing me up and that they are getting there interest no matter what what a better way to pay off the loan asap?

  70. Ryan Lynn says:

    Good vid man

  71. kofori321 says:

    I wonder why schools and colleges dont teach about Student loans, car loans, mortgages etc. The archaic curriculums need to be revised asap.

  72. _ Valles says:

    Dang 7 seconds in and told to like the video already. Chill.

  73. God First Bro says:

    I have a 72 month lease for a 2018.

  74. CardiakMusik says:

    But I don’t get it. I have the option of paying the auto loan off for 11k, which is what it says my principal balance is (which I thought already included interest)
    But when I pay like 500 at a time, only 420 goes to the balance . The other amount just disappears and says it goes to interest.
    But when I check to see how much interest is left on the loan- it’s nowhere to be found??

  75. Juan Espino says:

    Can you please help me. I’m 22 and I wanted to buy myself a Jeep Wrangler. I was able to get one from my local dealer for $32k but with taxes it went up to $35k. They gave me an apr of 18% and now I’m paying $822 monthly. Could you please help me out with how I can help myself out by lowering my apr and paying my loan faster than the 72 month term they gave me. I need help. I don’t want to return my Jeep. I just want to know if there’s any way I can help myself out. If anyone has any suggestions I’m open to everyone’s tips. Thank you

  76. Frank Nava says:

    prot tip: buy used cars form private sellers

  77. EliminatedByeLOL says:

    The rate is 7.25 at 60 months it would’ve been lower if you did 24 months but monthly payments would’ve been higher but the longer you hold the loan the more interest they want

  78. Janiece Cooper says:

    Anyone have the link to the “loan” app ? I cant find it

  79. Chris Smith says:

    Now let’s be real 3% sounds nice and dandy but in reality u gonna pay double what the car is worth after u done paying it just like a house u gonna pay double or even more tab what it’s worth save ya money n buy it cash

  80. •Y e e t • says:

    thank you!

  81. Ronald Monroe says:

    Please keep this up! Def appreciate the simplicity. Thanks!

  82. Jay loxe says:

    Quick question. If you finance up to a certain amount for example 25K & you’re shopping for a car around that market is the interest part of the total value of the car or is that added after? So if the car comes up to be 22-24k, does the interest rate get added on before or after the total value of the loan?

  83. OmaKicks says:

    Fuck off. Some ppl are not as rich as you and can’t do 60 months.

  84. Dakota Walker says:

    Thank you for this video. I learned something knew although this is still jibberish to me but i dont learn something new thank you very much for that. Are there any classes i can take to help me learn? It seems everyone has someone to trach them about this stuff but i have noone and i was wondering are their such classes. Thanks again

  85. Genesis George says:

    Why you jumping at me bro? Lol good video

  86. Luis Cuellar says:

    Wow now I come across this. I got screwed with no lube. 🤦🏻‍♂️🤦🏻‍♂️🤦🏻‍♂️🤦🏻‍♂️ . I am upside down right off the bat.

  87. Luis Cuellar says:

    Wow now I come across this. I got screwed with no lube. 🤦🏻‍♂️🤦🏻‍♂️🤦🏻‍♂️🤦🏻‍♂️ . I am upside down right off the bat.

  88. Jesse Mulliniks says:

    If you can’t pay cash you can’t afford it

  89. bevoburn says:

    im going to throw an extra 1K a month at my car loan to shave off some years on the note.

  90. Jake Penfil says:

    Lmao I wish my interest rate was 3% but mine in 26%💀

  91. chuckles says:

    my interest rate is a 27% on a 72 month loan, what should i do?? i’ve had car for a year.

  92. Pop Skull says:

    Your video was very informative thanks for sharing your knowledge with us. Tons of people have no idea how loans, financing and interest rates work, me being one of them! But now I have a better understanding of it and it only took 4:31 thanks again. I’ll have to make sure I check out the rest of your videos.

  93. joshuag94 says:

    Jason, do you think it's a good idea if I put $5k towards my 60 month loan and then refinance after so that I can lower my monthly payments and then put another lump sum of cash towards the loan next year?

  94. Zunchao Zheng says:

    My car loan interest rate is 4.99% for 60 month. Do you think it is good ? Can I pay more to save interest?

  95. Erick Reyes says:

    I financed for a 2011 Toyota 4 runner for my first vehicle. I have good credit but not it’s not a long enough history for the banks apparently. I got the vehicle for 17’009 with a 8% interest rate for 54 months. 377.34 a month but I always pay at least 400 so extra can go toward the principal. I’m 5 months into the loan, should I refinance to just stick with this loan for the foreseeable future?

  96. R Mon1980 says:

    what if i decided to pay the car off after the second payment, would i only be paying what the cars original price or do i also have to pay the finance loan included.


    High interest? lot of money wasted? Men, you dont know the 12% interest yearly from México for a car, or 14% for a home, a credit card? pfff 70% interest for a year!

  98. Casper_323310 Blackout says:

    So I bought a brand new jeep grand Cherokee that was 44,000 I put 10k down so it's 34,000 and my interest rate is 21% . Can you please explain? Because I have no clue what I got myself into

  99. taylor hamilton says:

    Top quality content, really helped!

  100. Fast AF says:

    What happens if I pay a 72 month loan in half the time?

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