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How to Calculate Interest Rate on a Car Loan

Hands Doing Calculations with Calculator
When you take out an auto financing loan in Harvey, interest payments are added to the total amount you pay. If you’re unsure about how to calculate interest rate on a car loan, it can be hard to estimate your monthly payments. In the guide below, the Ray Brandt Kia auto finance experts show you how to calculate auto loan interest on your next vehicle purchase — so you can get financing ASAP!

What Are Interest Rates?

Before we dive into the details of how to figure interest on a car loan, let’s define an interest rate. When you finance a car, you’re buying it on credit. Your lender — whether a national bank or Marrero credit union — is actually footing the bill. Interest is essentially a fee you pay for the right to buy a car with money you don’t yet have. Knowing how to calculate interest rate on a car means getting familiar with the financing process and the factors that influence interest rates:

  • Principal Amount — The principal is the full dollar amount you intend to borrow.
  • Loan Term — The loan term is the length of time you will be paying on your car loan. In general, a shorter loan term means higher monthly payments but less interest paid overall. Longer loan terms will lower your monthly payments, but you’ll pay more in interest over time.
  • Repayment Schedule — You will owe a car loan payment once each month, but it’s possible to pay more often when you can. Getting ahead on your loan repayments is a great way to reduce your total interest payments.
  • Repayment Amount — When you make a loan payment, part of it pays toward your principal, and part of it pays toward your interest.

How to Calculate Auto Loan Interest for Your First Payment

Curious about how to calculate auto loan interest the easy way? Just use the following formula to figure out the amount of your first payment:

(interest rate ÷ number of monthly payments per year) x present loan balance

How to Figure Interest on a Car Loan Moving Forward

Your interest rate will change as you make repayments on your loan. Here’s how to calculate interest rate on a car after you’ve begun to pay toward your principal:

  1. Take the interest you just calculated above, and subtract it from your most recent payment amount: previous interest – most recent repayment amount.
  2. Next, subtract this amount from your original principal to find your new loan balance.

Knowing how to calculate auto loan interest yourself will help you stay on top of your finances and budget, but don’t hesitate to call our finance center with any questions. Our finance experts are happy to help!

Auto Finance Questions? Ask Us Anything at Ray Brandt Kia!

If you’re not confident about how to figure interest on a car loan on your own, our friendly finance team in Harvey can provide all the auto financing info you need. Give us a call for tips on getting a good interest rate, financing with damaged credit in New Orleans, and much more.

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