How to Calculate the Interest Rate on a Car Loan

Loan application
All vehicle loans in the Marrero area charge interest, but how much does your interest rate end affect your monthly payments? Learn how to calculate the interest rate on a car loan with help from the finance team at Ray Brandt Chrysler Dodge Jeep Ram.

What is an Interest Rate?

When you’re figuring out how to calculate interest on a new car, it’s important to understand more about interest rates themselves. When you buy a car on credit, your Gretna-area lender is the true owner until the entirety of your loan is paid out. Your interest rate is the cost you pay to use your car before it’s entirely paid out. The interest rate you pay is based on a variety of factors, including:

  • Repayment Amount: With every car loan payment you make, a portion goes to interest and a portion goes to repay your principal.
  • Principal Amount: The principal amount is the dollar amount you are looking to borrow.
  • Repayment Schedule: Most car payments are done monthly, but if you can make payments more often it could save you money over time. Thanks to compounding, when you make more payments you pay less interest.
  • Loan Term: This term means the length of time you will be repaying the loan. In general, shorter loan terms equal higher repayments, but less interest paid in the long run. With longer terms, you generally have lower monthly payments, but end up paying more in the long run.

How to Calculate Auto Loan Interest for First Payment

When discovering how to calculate auto loan interest for the initial payment you can use this quick calculation:

  1. Divide your interest rate by the total number of payments per year.
  2. Multiply your interest rate by the balance of your loan to see how much interest you pay in your first month.
Using a calculator

How to Figure Interest on a Car Loan Going Forward

Once you’ve started paying off your initial principal, you’ll need to calculate your new balance to see how much interest you’ll end up paying in the following months. To do this:

  1. Subtract your previously-calculated interest from the payment you just made. You’ll be left with the amount that you have paid off the loan principal.
  2. Deduct this total from your original principal to get your new loan balance.

Always remember that this is just a rough estimate that involves rounding and human error. Be sure to contact us for any assistance!

Figuring out finances

Get Help From the Financial Professionals at Ray Brandt Chrysler Dodge Jeep Ram

Are you feeling overwhelmed wondering how to figure interest on a car loan? Do you have additional financing questions for our experts at our Harvey dealership? They can walk you through every aspect of how to calculate interest on a car or even financing a car with bad credit at Ray Brandt Chrysler Dodge Jeep Ram. You can also check out our online monthly payment calculator before you stop by our dealership near New Orleans!

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