How to Calculate Interest Rate on a Car Loan

Anytime you take out a loan for a vehicle in Happy Valley, you are going to be charged interest, but how much does your interest rate end up impacting your monthly payments and the total amount owed? Today we find out as we go over how to figure interest on a car loan, courtesy of Weston Buick GMC, Inc. in Gresham.

What is an Interest Rate?

When discovering how to calculate auto loan interest, we first need to touch on what interest is and the factors that impact it. If you purchase a car on credit, your Portland lender owns your vehicle until it is paid off. The interest rate you pay is a fee you pay the lender for using their money to purchase your vehicle. What interest rate you end up paying your Beaverton lender is based on a variety of factors, including:

• Principal Amount: The principal amount is the dollar amount you are looking to borrow. 
• 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. 
• 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. 
• Repayment Amount: With every car loan payment you make, a portion goes to interest and a portion goes to repay your principal. 

Calculate the Interest Rate On a Car Loan for the First Payment

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

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

This gives you the amount of interest you pay the first month.

Get Help From the Financial Professionals at Weston Buick GMC, Inc.

If this seems a little overwhelming, or you have additional financing questions about how to figure interest on a car loan, the experts at our Gresham Finance Center are here for you. Our team can walk you through every aspect of how to calculate interest on a car loan at Weston Buick GMC, Inc. before you apply for financing. If you are looking for some basic information on how your interest rate will impact your monthly car loan payment, you can also check out our online monthly payment calculator.