How to Calculate the Interest Rate on a Car Loan

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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.


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