How to Calculate the Interest Rate on a Car Loan

Chances are, if you plan on buying a new or used car in Charlotte, you’ll be taking out a car loan. All auto loans have interest rates that will add to your monthly payment and affect how much you end up paying overall for your vehicle. So, how do you calculate the interest rate on a car loan? Hendrick Cadillac Monroe’s team of financial experts is here to help you learn how to figure interest on a car loan so that you can make an informed buying decision at our Monroe dealership.

What is an Interest Rate?

Purchasing a car on credit, or through a loan, means a lender is using their money to pay for your vehicle with the understanding that you’ll be paying them back. An interest rate is a fee you pay for the lender’s service and is based on a variety of factors:

• Principal Amount: The principal amount is how much you plan to borrow from the lender, usually the price of the car minus your expected down payment.
• Loan Term: The loan term is the length of time you’d like to repay the loan. If you choose a longer loan term, you’ll have a smaller monthly payment but end up paying more interest overall. A short loan term will reduce the interest you end up paying, but will make your monthly payments higher.
• Repayment Schedule: Your repayment schedule will vary based on the lender, but a typical car loan repayment schedule is once a month. If you choose to increase your schedule to two times a month or more, you could save money on interest over time.
• Repayment Amount: The amount you pay each month is split into two sections: the principal and the interest. The higher your payment, the more will go towards the principal, shortening the time you’ll be paying back your loan.

If you’re preparing to purchase a car near Pineville and want to know what kind of interest rate you qualify for, apply for financing through Hendrick Cadillac Monroe’s secure online portal!

How to Calculate Auto Loan Interest for Your First Payment

Now that you know what interest is, use this simple calculation to find out how much interest you’ll be paying in your first monthly payment:

1. Divide your interest rate by the number of monthly payments you will make in a year.
2. Multiply it by the balance of your loan which, for the first payment, will be the entirety of your loan amount.

How to Figure Interest on a Car Loan Going Forward

After you’ve paid your first monthly payment, calculating your interest gets a little more tricky. To find out how much interest you’ll pay on your next scheduled payment, follow these steps:

1. Subtract the amount of interest you’ve paid in your previous payments from the total payments you’ve made since starting your repayment plan. This will leave you the amount of principal left on your loan.
2. Deduct this amount from your original loan amount to find your new loan balance.
3. Use the steps above to calculate your future interest payment.

As always, math and human error go hand-in-hand. Be sure to use a calculator and remember to use number rounding to give you the best estimate.

Trust the Financial Professionals at Hendrick Cadillac Monroe!

Math isn’t everyone’s strong suit, so feel free to contact Hendrick Cadillac Monroe’s finance center near Concord if you have any questions! Our team is always here to help, whether you need car-buying tips to help make an informed decision or for estimated monthly payment calculations while you plan out your next purchase.