What does a car loan cost?

When you’re shopping for a car, it’s easy to focus on the sticker price. But one of the smartest first steps you can take is actually shopping for your car loan before you ever step onto the lot.

At Solidarity Community Federal Credit Union, we believe understanding the true cost of borrowing helps you make confident, informed decisions — and potentially save thousands over the life of your loan.

The Three Factors That Determine the Cost of a Car Loan

The total cost of a car loan depends on three key elements:

The Annual Percentage Rate (APR)
The loan term (length of time you borrow)
The principal (amount you borrow)

Let’s break each one down.

Understanding APR

APR, or Annual Percentage Rate, represents the yearly cost of borrowing money. It includes the interest rate plus any fees associated with arranging the loan. This finance charge is added to the amount you borrow and repaid through monthly payments over the life of the loan.

Example:
If you borrow $15,000 for four years at a 7.5% APR, your estimated monthly payment would be about $363. Over the life of the loan, you’d pay approximately $2,408 in interest — bringing your total cost to $17,408.

That’s why securing the lowest APR possible for your chosen term is so important. Even a small difference in rate can significantly impact what you pay overall.

While some dealerships may advertise promotional rates — sometimes even 0% — those offers often come with strict qualifications or trade-offs. Comparing options from local lenders, including credit unions like Solidarity, helps ensure you’re truly getting the best deal.

How Loan Term Affects Your Budget

The loan term refers to how long you take to repay the loan, and it plays a major role in both your monthly payment and total cost.

Shorter terms mean higher monthly payments but lower overall interest costs.
Longer terms lower your monthly payment but increase the total interest you’ll pay over time.

Using the same $15,000 loan at 7.5% APR:

3-year term: about $467/month, $1,798 total interest
4-year term: about $363/month, $2,409 total interest
5-year term: about $301/month, $3,034 total interest

Sometimes a longer term makes sense if it keeps your payment manageable and reduces financial stress. The key is finding a balance that fits your budget — while avoiding a loan term that outlasts the vehicle’s reliability.

Why the Principal Matters

The principal is the amount you borrow, and the more you borrow, the more interest you’ll pay.

Ways to reduce your principal — and your overall cost:

Make the largest down payment you can comfortably afford
Trade in your current vehicle while it still holds value
Choose a vehicle that fits both your needs and your budget

Reducing the principal upfront can lead to meaningful savings over time.

Don’t Forget the Not-So-Hidden Costs

Your car payment isn’t the only expense to consider. Auto insurance should always be part of your budgeting conversation.

Insurance costs vary based on factors like:

Vehicle type and value
Coverage level
Driving history
Location and age

In general, newer and more expensive vehicles cost more to insure. Factoring insurance into your monthly budget helps avoid surprises down the road.

How Solidarity Can Help

At Solidarity Community Federal Credit Union, we offer competitive auto loan rates, flexible terms, and local service you can trust. Whether you’re buying new, used, or refinancing an existing loan, our team is here to help you understand your options and choose what works best for you — not a sales quota.

Ready to Get Started?

Before you shop for a car, shop your loan.
Explore Solidarity’s auto loan options or talk with our team to get pre-approved and drive with confidence.