Buying a new car is an exciting experience. However, the monthly payments can be daunting, especially if you are financing a more expensive vehicle. When shopping for a $40,000 car, it’s important to understand all the factors that go into determining your monthly payment amount. In this article, we’ll walk through the key details and provide estimates to help you determine what the monthly payment could be for a $40,000 car loan.
How Auto Loan Payments Are Calculated
At its core, your monthly auto loan payment is based on four key factors:
- The sale price of the vehicle
- Your down payment amount
- The interest rate
- The length of the loan term
Lenders of cars use this information to figure out your monthly payment using a method known as amortization. What this means is that some of each payment goes toward interest and some goes toward paying off the loan balance.
In the early months, interest makes up more of the payment. But as the loan balance decreases over time, more of each payment is applied to principal. An auto loan calculator can estimate payments for you based on your inputs. But you can also calculate it yourself using this general formula:
Monthly Payment = Total Loan Amount / Loan Term in Months
So for a $40,000 loan over 60 months (5 years) at 5% APR, the total interest would be about $3,862 This brings the total loan amount to $40,000 + $3,862 = $43,862.
With a 60 month term, the monthly payment would be:
$43,862 / 60 months = $731
Next, let’s look at some common factors that will help you figure out how much a $40,000 car would really cost each month.
Vehicle Price
First, you should know that most people don’t buy new cars for the full price that they are marked down. There is usually room to negotiate a lower sale price. If the MSRP is $40,000, a fair price to expect in negotiations is between $37,000 and $38,000.
You can also find good used car values in the $35,000 – $40,000 range for models that are 1-3 years old. The condition and mileage impact used car pricing.
Down Payment Amount
The more you can put down upfront, the less you have to finance. This reduces the monthly payments. A 20% down payment on a $40,000 car would be $8,000. A 10% down payment would be $4,000. If you put 0% down, you would finance the full $40,000 purchase price.
Interest Rates
Interest rates vary quite a bit based on your credit score. Here are some average new and used car loan APRs by credit score tier:
- Excellent (781-850): 4.5% – 5.5%
- Good (661-780): 5.5% – 7.5%
- Fair (601-660): 8% – 12%
- Poor (500-600): 13% – 20%
So buyers with excellent credit might expect to see rates around 5%, while subprime borrowers will pay higher rates. The better your credit, the lower your interest rate will be.
Loan Term Length
Auto loans typically range from 24 months to 84 months (7 years). 36 months and 60 months are common loan terms. The longer the term, the lower the monthly payment will be. But you pay more interest overall with a longer loan.
Estimated Payments on a $40,000 Car
Now let’s use reasonable assumptions to figure out how much a $40,000 car would cost each month:
5 year loan, Excellent credit
- Vehicle Price: $38,000
- Down Payment: $7,600 (20%)
- Amount Financed: $30,400
- Interest Rate: 5%
- Loan Term: 60 months
- Monthly Payment: $560
5 year loan, Good credit
- Vehicle Price: $37,000
- Down Payment: $3,700 (10%)
- Amount Financed: $33,300
- Interest Rate: 6.5%
- Loan Term: 60 months
- Monthly Payment: $630
6 year loan, Fair credit
- Vehicle Price: $35,000
- Down Payment: $0
- Amount Financed: $35,000
- Interest Rate: 10%
- Loan Term: 72 months
- Monthly Payment: $589
7 year loan, Poor credit
- Vehicle Price: $32,000
- Down Payment: $0
- Amount Financed: $32,000
- Interest Rate: 18%
- Loan Term: 84 months
- Monthly Payment: $592
As you can see, the monthly payment for a $40,000 car can vary significantly based on the loan details. But with typical financing, you can expect payments in the range of $550 – $650 per month. Extending loan terms or having poor credit will increase interest costs over the long run.
Other Costs to Factor In
The monthly loan payment is just one piece of your total car expenses. You’ll also need to budget for:
- Auto insurance – easily $100+ per month
- Fuel costs – depends on mileage but figure $150 – $300 monthly
- Maintenance and repairs – about $50 – $150 per month average
So your total monthly costs will likely run $800 – $1,200 for a $40,000 vehicle. Be sure to look at the big picture costs before committing to a car you can’t truly afford.
Tips for Lowering Your Payments
If the payments are stretching your budget, here are some tips to reduce the monthly burden:
- Shop interest rates from multiple lenders
- Put down as large a down payment as you can
- Choose a shorter loan term if possible
- Buy a less expensive used car instead of new
- Improve your credit to get better rates
- Weigh pros and cons of leasing instead of financing
Use an Auto Loan Calculator
Online auto loan calculators like those from NerdWallet, Bankrate and Cars.com let you adjust the inputs to estimate monthly payments. This can help narrow down affordable loan scenarios before you start shopping. Be sure to get pre-approved financing so you know your actual rate and terms.
The Bottom Line
While it’s exciting to shop for a $40,000 vehicle, make sure you carefully consider the monthly payment and total affordability. With an average down payment, credit, and 5-6 year loan term, expect to pay around $550 – $650 per month. Run the numbers for your situation and budget to find a comfortable and realistic payment amount.
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How This Auto Loan Calculator Works
Enter variables such as purchase price, down payment, term and interest rate to see how they can impact monthly payments and what it will take to pay off a car loan.
Purchase Price: It is suggested that the monthly debt consolidation loan payment be no more than 10% to 15% of your gross monthly income after taxes. A lower purchase price will make it easier to make monthly payments that you can afford, but there are many good reasons to spend more on a car that will last longer or meet the needs of your family.
Down Payment: If you put down more money, you can get lower interest rates, lower monthly payments, and a shorter loan term. Increasing this amount by saving before buying can have a big effect on the total cost of a car, giving a family more choices that they can afford.
Loan Terms: A loan term is the amount of time you will be paying your monthly auto loan payments — how long your car loan payoff will take. Longer term loans allow for a smaller monthly payment but add up to larger amounts of interest paid on a car in total.
Interest Rate: A car loan’s interest rate will depend on a few factors including credit score, term length, down payment, and lender. The lowest interest rates will be available for buyers with high credit scores, large down payments, short term lengths, and who take out loans with credit unions like Navy Federal rather than a bank or other alternative lender.
Mastering Car Loan Math: Calculating Interest and Principal Like a Pro!
FAQ
What is the monthly payment on a $40,000 car loan?
The monthly payment on a $40,000 car loan is around $584. 34 to $1,216. 88 with interest rate of 6%. The monthly payment for auto loans varies depending on the interest rate and the car loan payoff years.
What is the monthly payment for a car loan?
The monthly payment for auto loans varies depending on the interest rate and the car loan payoff years. For instance, the monthly payment for a $700,000 car loan with a 6% interest rate is $584. 34 and the monthly payment for a 3 year term car loan with the same interest rate would be $1,216. 88.
How do you calculate a car loan payment?
$40,000 Car Loan. Calculate the Monthly Payment Use this calculator to calculate the payment of a car loan. Loan Amount: Amount of loan taken. Interest Rate: Interest rate of the loan. Length of Loan: Time period of loan, in years. How much are the monthly payments for a $40,000 car loan? 40k car loan. What’s the payment?.
How do I calculate my monthly payments for a $40,000 loan?
You just need to divide the interest rate by 12 and multiply the resulting amount by the loan balance. If you are offered a 2% interest rate for three years (or 36 months), 3% for four years (48 months), 4% for five years (60 months), and 5% for six years (72 months), your monthly payments for a $40,000 loan will be as follows:
What is the cost of a $40,000 car loan?
What is the cost of a $40,000 car loan? You will pay a total of $47,523 over the course of the loan, with $7,523 being the interest.
How much should I pay for a $40,000 loan?
If you borrow $40,000 for five years and the interest rate is 4%, your monthly payment will be $730. Remember that the longer the loan period, the more money you will overpay to the bank. Last but not least, don’t forget to check your credit score and keep it high to get the best deal.
How much is a $40,000 car payment a month?
What’s a good down payment on a 40k car?
It’s ideal to put down at least 20% on a new car, and 10% on a used car. Making a down payment (even if it’s smaller) can help you get a better rate and make it easier to get approved. Skipping your down payment can lead to negative consequences like an upside-down car loan.
What credit score do you need for a $40,000 car loan?
Quick Answer. While it’s possible to get an auto loan with nearly any credit score, most lenders are looking for buyers in the prime credit score range with a credit score of 661 or above for the best terms and rates.
How much is the monthly payment on a $35000 car loan for 72 months?
If you take out a $35,000 new auto loan for a 72-month term at 4.0% interest, then your monthly payment will be $547.58. Although your monthly payments won’t change during the term of your loan, the amount applied to principal versus interest will vary based on the amortization schedule.