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Subtract the down payment first
The down payment reduces the amount that must be financed before the loan payment formula is applied.
Amount financed = vehicle price + financed fees/taxes − down payment − trade-in credit
Worked example
On a $30,000 vehicle with a $5,000 down payment and no other financed items, the starting financed amount is $25,000.
Interest rate and term still matter
A larger down payment lowers principal, but the interest rate and number of monthly payments also have a major effect on the final payment.
Common mistakes
- Applying the down payment after calculating the loan payment.
- Ignoring financed taxes or fees.
- Comparing payments with different loan terms as if they were equivalent.
Frequently asked questions
Does a bigger down payment lower the monthly payment?
Usually yes, because less principal is financed.
Does it always reduce total interest?
Generally, financing less principal reduces interest if the other loan terms are unchanged.
Should taxes and fees be included?
Include any amounts that will actually be financed.