How to Calculate the Interest Rate on a Car Loan

Woman Working on Laptop

 

Any time you take out a loan for a vehicle in Coweta County, you’ll be charged interest, but how much does your interest rate end up impacting your monthly payments and total amount owed? Today, we’ll find out as we go over how to calculate the interest rate on a car loan. We’ve got everything covered when it comes to finance at Scott Evans Chrysler Dodge Jeep Ram.

What is an Interest Rate?

To find out how to calculate interest on a car, we’ll first need to explain what interest is and the factors that impact it. If you pay for a car on credit, your lender will own your vehicle until you’ve got it paid off. The interest rate you pay is, in essence, a fee you pay the lender for using their money to purchase your vehicle. The interest rate you pay your lender is factored from a variety of sources. This includes:

  • Principal amount. This is the dollar amount you’re looking to borrow for your Douglas County vehicle.
  • Loan term. This term means how much time you’ll repay the loan. In general, shorter loan terms translate to higher repayments but less interest paid in the long run. With longer terms, you’ll have lower monthly payments but pay more in the long run.
  • Repayment schedule. Most car payments are done on a monthly basis, but if you can make more frequent payments on your Villa Rica vehicle, you’ll save money over time. Thanks to compounding, when you make more payments, you pay less interest.
  • Repayment amount. With each payment you make on your car loan, a portion goes to interest and a portion goes to principal.

How to Calculate Auto Loan Interest for First Payment

Here’s a guide on how to calculate auto loan interest:

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

This will show you what you pay for your first month.

How to Figure Interest on a Car Loan Going Forward

Once you’ve paid down your initial principal for some time, you’ll need to calculate your new balance to work out the interest you pay in the months that come after. To do this:

  1. Subtract the interest you calculated from the payment you just made and this will give you how much you’ve paid from the principal.
  2. Deduct this from your original principal to get your new loan balance.

Our Finance Pros Are Ready to Help!

Now that you know how to figure interest on a car loan, we’d love to help you out with the rest. Want to apply for financing online? Scott Evans Chrysler Dodge Jeep Ram has you covered every step of the way, including the rest of your finance questions. Reach out to us today and we’ll help you out.

 

More from Scott Evans Chrysler Dodge Jeep Ram

  • 2022 RAM 1500 Interior

      The 2022 RAM 1500 interior delivers some of the best features in the industry. In a truck that already delivers the capacity to tackle some of the toughest Coweta County towing jobs, you’re still able to commute with maximum comfort. The 2022 RAM 1500 interior options have a ton of versatile offerings, and there’s no…

  • 2022 Dodge Charger Trim Levels and Pricing

    If you’re looking to give your Coweta County commute a serious upgrade, look no further than the iconic Dodge Charger! This legendary four-door muscle car boasts powerhouse performance specs and sleek features, perfect for anything from a daily driver to an off-road adventure. When picking out a 2022 Dodge Charger, you can choose from seven unique…

  • 2022 RAM 1500 Dimensions

      Can the 2022 RAM 1500 interior dimensions accommodate your crew as you travel from one Coweta County to another? What are the 2022 RAM 1500 bed dimensions? Are there 2022 RAM 1500 bed sizes that can hold everything you need to haul? Scott Evans Chrysler Dodge Jeep Ram takes a closer look at the 2022 RAM 1500 dimensions and answers…

Scott Evans Chrysler Dodge Jeep Ram 33.613149, -85.0047918.