How to Calculate the Interest Rate on a Car Loan

Learn how to calculate interest on a car loan with this quick guide from our service team. It’s important and handy to know how to calculate interest on a car, and you can get a better understanding of how much you’ll be paying once you’ve got it down. Take a look below at how to calculate auto loan interest and how interest rates work. At Jim Hoffpauir, Inc., we offer plenty of money-saving options when you’re looking for your next vehicle. That’s why we offer new and used vehicle specials for Marble Falls drivers!

What’s an Interest Rate & Why Are They Important?

When you buy a car on credit, your lender owns your vehicle until it’s paid off, and you pay on a loan while accruing interest over time. The interest rate that you pay is added to the total remaining cost of the vehicle. Your interest rate is determined when you apply for an auto loan and it can vary based on your credit score and what a given lender is willing to lend you for the auto loan.

• Principal Amount: The principal amount is the dollar amount you are looking to borrow. 
• Loan Term: The length of time you will be repaying the loan. Shorter loan terms equal higher repayments generally, but less interest paid in the long run. For longer terms, you generally have lower monthly payments, but you’ll end up paying more in the long run. 
• Repayment Schedule: Most car payments are done monthly, but if you can make payments more often, you’ll save some money over time. Thanks to compounding, when you make more payments you pay less interest. 
• Repayment Amount: With every car loan payment you make, a portion goes to interest, and a portion goes to repay your principal. Paying more money than what’s required means paying more in principal and lowering your remaining owed amount.

How to Calculate Auto Loan Interest for Your First Payment

How to figure out interest on a car is pretty straightforward. Here’s how to calculate auto loan interest on your initial payment:

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

That’s how to calculate your auto loan interest!

How to Figure Interest on a Car Loan Going Forward

As you’re paying off your car loan, your total amount owned will lower over time. Here’s how to calculate the interest rate on a car loan and determine the interest you’ll be paying:

1. Subtract the interest you just calculated from the payment you just made, and this will leave you 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. 

Rounding will mean that you won’t have an exact amount every time, but this will give you a good basis for how to calculate auto loan interest on your vehicle.

Finance Your Next Vehicle at Jim Hoffpauir, Inc. Today

Now that you know how to calculate interest on a car loan, you’re ready to start applying for financing with lenders. If you have any questions about applying for car loans or about interest rates, reach out to us today for professional advice and information!