How to Calculate the Interest Rate
on a Car Loan

Whenever you take out a loan on a new or used vehicle, you’ll also pay a set interest rate on top of your payment amount. The amount of interest can have quite an impact on your monthly payment. The finance department at Nyle Maxwell Chrysler Dodge Jeep Ram can help you determine how to calculate auto loan interest rates to help alleviate any surprises you may encounter when making your monthly payments.



What is an Interest Rate?

Before learning how to calculate the interest rate on a car, we should briefly cover what an interest rate is, since the term may not be familiar with Round Rock drivers. When you buy a car using credit, your lender technically owns the car until you pay off the loan. The interest rate is essentially a fee you are charged for using the lender’s money to buy the vehicle. The amount of the interest rate is based on a number of factors, including:

  • Principal Amount: This is the dollar amount at which you are looking to purchase the vehicle.
  • Loan Term: This is the amount of time you will be paying back the loan. Usually, the shorter the term, the higher the payments are. The longer the term, the lower the payments are.
  • Repayment Schedule: Most car payments are made monthly, but due to compounding, if you can make more payments more often, you can save money over time.
  • Repayment Amount: Whenever you make a car payment, a portion of that payment goes towards the interest and the other portion goes to the actual amount of money owed.

You can speak with your lender to discuss interest rates more in-depth before you get on the Cedar Park roads in a new car.

How to Figure Interest on a Car Loan for the First Payments

When determining how to calculate the interest on a car loan for the first payment, here are some steps to take:

  1. Divide your interest rate by the number of monthly payments you will be making this year.
  2. Multiply this amount by the balance of your loan, which for the first payment, will be your whole principal amount.

This is how to calculate auto loan interest for the first payment.

How to Figure Interest on a Car Loan Going Forward

Now that you have the first month figured out, here’s how to calculate the interest rate on a car loan for the rest of the term:

  1. Subtract the interest you calculated from the payment you just made, and this will leave you with the amount that you have paid off the loan principal.
  2. Deduct this total from your original principal to get your new loan balance.

You won’t get an exact number every time, but this is a good step in knowing how to calculate auto loan interest for the rest of the term. Learn what a good car loan interest rate is among other tips when you visit Nyle Maxwell Chrysler Dodge Jeep Ram.

Calculate Your Loan with Nyle Maxwell Chrysler Dodge Jeep Ram

Now that you have a better idea of how to calculate the interest rate on a car loan, you can go over all of your other questions with our finance experts in Austin. You can contact us over the phone to go over questions or use our simple payment calculator. This tool will help show you how to figure interest on a car loan easier, so you don’t have to worry about finances while cruising through Georgetown.

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