How to Calculate Interest Rate on a Car Loan

July 14th, 2019 by

Finance-UsedCars

When taking out a loan, you’re going to be charged interest, so it’s important to know how to calculate interest rate on a car loan. How much does this interest impact your monthly payments and the total amount owed in the end? Learn how to find out interest rate on cars and more at Acura of Avon.

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What Is A Car Loan Interest Rate?

In order to know how to calculate interest rate on car financing, you first need to know what is an interest rate. If you take out a loan, the vehicle belongs to the lender until paid off. An interest rate is a fee that the lender charges you as long as you’re making payments on the vehicle. The interest rate ends up being based on a few factors including:

  • Principal Amount: This is the amount you’re looking to borrow.
  • Loan Term: This is the length of time you’ll be repaying the loan. Normally, shorter loan terms mean a higher payment each month, and less interest over time.
  • Repayment Schedule: While payments are normally made monthly, you can make payments as often as you can and this means less interest being paid as the loan will be paid off before the loan term agreed upon.
  • Repayment Amount: With each payment, part goes to the interest and the other part goes to repay your principal.

How To Find Out Interest Rate on Cars

To know how to find out interest rate on cars, use this trick. You can calculate this amount by:

  • Dividing your interest rate by the number of monthly payments you’ll make over the year.
  • Then multiply it by the balance of the loan, which is the whole principal amount for the first payment.

Interest On Your Car Loan Going Forward

After you’ve learned how is the interest rate calculated on a car loan, now it’s time to get you prepared for your payments. Once you’ve paid the initial principal, calculate the new balance to find out the interest you’ll be paying in the following months. In order to find this amount, follow these steps:

  1. Subtract the interest you calculated from your first payment. This will give you the amount that you paid off the loan principal.
  2. Deduct this total from your original principal for the new loan balance.

You may not get an exact number with human error and rounding being factors, but this number is as close to the real estimate as you can get.

Calculate Your Interest Rate at the Acura of Avon Finance Center

Now that you know how to calculate car interest on a new Acura, stop by our finance department if you have any questions on your interest rate, or want to get another assessment with a car loan principal and interest calculator. Contact us today to learn more about Acura finance like what comprehensive insurance covers or to schedule an appointment with a finance expert at our showroom near Berlin and Springfield!

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