Interest rates have a direct impact on monthly payment size. The interest rate represents the cost of borrowing money, and a higher interest rate results in a larger monthly payment to cover the higher cost of borrowing the money.

In general, lenders view credit scores as a way of gauging the risk that their loan will be repaid. Lenders tend to charge lower interest rates to customers with good credit scores since they have greater confidence that the loan will be repaid in full. Since interest rates are directly correlated with monthly payment amounts, having a good credit score will usually result in being able to secure a lower interest rate and lower monthly payment.

Loan terms can vary substantially by lender, age of the vehicle being financed, and other factors; however, most auto loans range from 48 to 84 months.

A trade-in will usually help decrease your monthly payment – but not always! If the trade has positive equity (it’s worth more than the balance of the loan against it, or there is no loan against it), it can be put toward the purchase of a new vehicle and reduce the amount that needs to be borrowed, which in turn reduces the monthly payment. If the trade has negative equity (it’s worth less than the balance of the loan against it), the negative equity in the trade will need to be paid-off by the dealer. Frequently, that negative equity is “rolled”, or added, to the new loan, increasing the amount that needs to be borrowed and increasing the new monthly payment.

A mathematical formula based on the amount financed, interest rate, and loan term (number of monthly payments) is used to solve for the exact monthly payment amount needed to repay a loan in full, including interest.