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How to Calculate the Interest Rate on a Car Loan

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If you’re searching for “how to calculate interest rate on a car,” then you’ve come to the right place. How to figure interest on a car loan is relatively simple, and it is important to be able to do so when you’re considering financing a car. Contact our finance department with further questions, and you can also take a look at our car buying tips

What is an Interest Rate?

For you to learn how to calculate auto loan interest correctly, you first need to know what affects your interest rate. When you take out a loan on a new car, your lender will charge interest on the principal amount. So your monthly payments reflect the principal amount plus the interest charged each month for using the lender’s money to purchase your vehicle. How to calculate interest on a car loan is fairly straightforward, but you first have to consider some things:

  • Principal Amount: The principal amount is the amount you spent on the car, without interest. 
  • Loan Term: The loan term is how long the lender has given you to pay off the loan. Longer loan terms mean lower monthly payments, but that also means that you’ll have to pay more interest. 
  • Repayment Schedule:  most car payments are made monthly, but you can also pay more than the monthly payment specified in your contract. Doing so will result in less interest. 
  • Repayment Amount: When you send in your car payment each month, a portion of that amount goes toward interest in the other portion goes toward the principal amount.

How to Calculate Auto Loan Interest for First Payment

How to figure interest on a car loan? Use this quick calculation to determine how much interest you’re paying on your loan:

  1. Divide your interest rate by how many loan payments you’ll pay each year.
  2. Multiply it by the balance of your loan, which for the first payment, will be your whole principal amount.

How to Figure Interest on a Car Loan During Loan Term

Once you pay the initial principal amount, you need to work out the new balance factoring in your interest. Use this quick calculation:

  1. Subtract the interest calculated from your first payment; the answer will be how much you have paid off the principal amount.
  2. Subtract the total from your original loan amount to get your new total. 

Consult Our Finance Department Today!

Now that you know how to calculate interest rate on a car loan, are you ready to drive home to Mount Vernon in a new or used Mitsubishi? Use our payment calculator to determine how much you can afford to spend on monthly payments. How to calculate auto loan interest is quick and easy, and with the help of our finance department, you can get the best deal available! We’re located near New Rochelle and Westchester. Come by today to view our inventory!

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