$20,000 Car Loan over 6 years: what it costs each month
What a $20,000 car loan over 6 years costs at different rates
The rate you are offered depends on your credit score (FICO or VantageScore), your income and how much you borrow. The same $20,000 over 6 years can cost very different amounts, so it is worth seeing the whole range before you apply.
Moving the rate by one percentage point, from 7% to 8%, changes the monthly payment by about $9.68 and the total interest by about $697.
$20,000 over 6 years by interest rate
| APR | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 4% | $312.90 | $2,529 | $22,529 |
| 5.5% | $326.76 | $3,527 | $23,527 |
| 7% | $340.98 | $4,551 | $24,551 |
| 9% | $360.51 | $5,957 | $25,957 |
| 12% | $391.00 | $8,152 | $28,152 |
| 15% | $422.90 | $10,449 | $30,449 |
Fixed rate, equal monthly payments, no fees.
The formula behind the payment
The payment on a fixed-rate loan is: amount × monthly rate ÷ (1 − (1 + monthly rate)−months). For $20,000 over 72 months at 7% APR the monthly rate is 0.5833%, which gives $340.98. Multiplying by 72 months gives $24,551 repaid in total, so the cost of borrowing is $4,551.
Should you borrow $20,000 over 6 years or a different term?
A longer term lowers the monthly payment but you pay interest for longer. At 7% APR, repaying $20,000 over 3 years costs $617.54 a month and $2,232 in interest, while 7 years costs $301.85 a month and $5,356 in interest. That is $3,124 more for the lower payment.
$20,000 at 7% APR by term
| Term | Monthly payment | Total interest | Total repaid |
|---|---|---|---|
| 3 years | $617.54 | $2,232 | $22,232 |
| 4 years | $478.92 | $2,988 | $22,988 |
| 5 years | $396.02 | $3,761 | $23,761 |
| 6 years | $340.98 | $4,551 | $24,551 |
| 7 years | $301.85 | $5,356 | $25,356 |
Interest versus capital: where your payments go
Early payments are mostly interest. In year 1 of this $20,000 loan, $1,312 of your $4,092 goes on interest and $2,780 reduces what you owe. By the last year the split reverses, which is why paying off a loan early saves more in the early years than the later ones.
$20,000 at 7% APR over 6 years
| Year | Interest paid | Capital repaid | Balance left |
|---|---|---|---|
| 1 | $1,312 | $2,780 | $17,220 |
| 2 | $1,111 | $2,981 | $14,239 |
| 3 | $896 | $3,196 | $11,043 |
| 4 | $664 | $3,427 | $7,616 |
| 5 | $417 | $3,675 | $3,941 |
| 6 | $151 | $3,941 | $0 |
Totals for each year of the loan.
What happens if you overpay your $20,000 loan?
Paying a little extra each month cuts the balance faster, so less interest is charged. Check that your lender allows overpayments and whether there is a charge: many allow up to a set amount a year without one.
Overpaying a $20,000 loan at 7% APR
| Extra payment | New monthly payment | Loan cleared in | Interest saved |
|---|---|---|---|
| +$35 a month | $375.98 | 64 months | $536 |
| +$70 a month | $410.98 | 58 months | $957 |
| +$140 a month | $480.98 | 4 years | $1,577 |
Compared with the normal 6 years term. Fixed rate, no fees.
How to work out if the payment is affordable
A common check is to keep all debt repayments, including this car loan, below about a third of your take-home pay. A $340.98 payment fits that guide if your monthly take-home pay is at least $1,023.
Also look at what happens if your income drops. Choose a payment you could still make for several months without borrowing again.
What to check before you sign
- Compare offers from banks, credit unions and online lenders. Prequalifying with a soft credit check does not affect your credit score.
- Ask about origination fees, which are taken from the loan amount and raise the true cost.
- Check for a prepayment penalty. Most lenders do not charge one, but some do.
- Credit unions often offer lower rates than banks for members with fair credit.
Ways to pay less interest
- Pick the shortest term whose monthly payment you can comfortably afford. Going from 7 years to 3 years would save $3,124 on this loan.
- Improve your credit score before you apply: pay bills on time, keep card balances low and dispute errors on your reports.
- Make extra payments when you can, as long as there is no penalty. Each extra payment cuts the balance that interest is charged on.
- Borrow only what you need: every extra $1,000 at 7% over 6 years adds about $17.05 to the monthly payment.
Sources and further reading
Questions people ask
How much is a $20,000 car loan per month over 6 years?
How much interest will I pay on $20,000 over 6 years?
Is it cheaper to borrow $20,000 over a shorter time?
What income do I need for a $20,000 car loan?
Does this calculator include fees?
Results are estimates for information only, not financial advice. Read the full disclaimer.