How to Calculate the Interest Rate on a Car Loan

Car key & credit card on a signed contract

When you take out a loan for your Nashua vehicle, you’ll be charged interest, but how much does your interest rate end up having an influence on your monthly payments? This article will cover how to calculate the interest rate on a car loan. If you’re looking for further information on financing from Porsche Stratham, we suggest you apply for financing online and start the process off on the right foot.

What is the Interest Rate?

If you’re figuring out how to figure interest on a car loan for your Portsmouth car, we’ll want to figure out interest first and the factors that impact it. If you purchase a car and get credit, your lender owns your vehicle until it’s paid off. The interest rate you pay is, in essence, a fee you pay the lender for taking advantage of their money to buy your vehicle. Your interest rate is dependent on all these factors:

  • Principal amount. This is the dollar amount you’re looking to borrow.
  • Loan term. This term corresponds to the amount of time you’ll be repaying the loan. In general, a shorter loan term equals a higher monthly payment, but less overall interest paid. If you have a longer loan term, that’s lower monthly payments but more interest paid. When figuring out how to calculate auto loan interest, this is an important consideration.
  • Repayment schedule. Most car payments are done monthly, but you can save money if you make payments more often. When you make more payments, you pay less interest overall.
  • Repayment amount. With every car loan payment you make, a portion goes to interest and a portion goes toward your principal.

How to Calculate Auto Loan Interest for First Payment

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

How to Figure Interest on a Car Loan Going Forward

  1. Subtract the interest you just calculated from the payment you just made. This’ll leave you with the amount you’ve paid off the loan principal.
  2. Deduct this total from your original principal and you’ll have your new loan balance.

Let Porsche Stratham Answer Your Finance Questions

We’ll help you with how to calculate the interest rate on a car and so much more at Porsche Stratham. We’ve even got a monthly payment calculator helping you out. Manchester drivers, car loans don’t have to be a scary situation. Contact us today to learn more.

 

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