How to Calculate the Interest Rate on a Car Loan

Posted: Saturday, August 17th, 2019

When you take out a loan on a car near St. Louis, interest is par for the course. So, how much does interest actually impact your first car loan payment, as well as the payments going forward? Below, you’ll learn more about how to calculate an interest rate on a car loan, and how that interest will affect your payment. Read on for more information from the team at Green Light Auto Credit!

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What is Interest on a Car Loan?

First, let’s answer the question, “What is an interest rate?” When you finance a car, you’ll be charged interest, which is essentially what you pay the lender for using their funds to buy your vehicle. What determines your interest rate? It can be difficult to narrow it down to just one deciding factor, but the following hold considerable weight:

  • Loan Amount: The amount of money you want to borrow.
  • Loan Term: The loan term refers to the length of the loan, or how long you’ll be making payments. Typically, shorter loan terms result in higher repayments, but less interest overall. The opposite is generally true for long-term loans.
  • Repayment Schedule: Car payments are usually due on a monthly basis. However, if you’re able to make more than one payment a month to pay your loan off early (check with your lender first), you’ll save more in interest charges.
  • Repayment Amount: Your car loan payment is split up — a percentage goes toward interest and the rest goes toward the principal.

How to Figure Interest on a Car Loan: First Payment

Happy Green Light Auto Credit Customers

How much interest can you expect to pay with your first car loan payment? Use this simple calculation below to find out:

  1. Divide the interest rate for your loan by the number of monthly payments you’ll make this year.
  2. Multiply the result by the balance of your loan. For the first payment, this will be your entire principal amount.

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How to Calculate Auto Loan Interest: Going Forward

After you’ve begun chipping away at your auto loan, you can use the following calculation to estimate what you’ll pay in interest going forward:

  1. Subtract the interest you just calculated from the payment you most recently made and this will give you the amount you’ve paid off the loan principal.
  2. Subtract this total from your original principal and you’ll get your new loan balance.

While you may not get an exact calculation due to rounding and human error, the above methods will give you a good estimate.

Get More Advice from the Experts at Green Light Auto Credit!

If you have additional questions about how to calculate an interest rate on a car or are wondering how to get a low interest rate, contact us at Green Light Auto Credit! We’ll walk you through each step and help you get behind the wheel of the vehicle you need to get around Herculaneum and Florissant. We can also answer any related questions you may have about trading in a car to lower your principal amount or APR vs. interest!

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