How to Calculate Interest Rate On a Car Loan

Woman Using Calculator

You’ve just picked out the perfect car and signed on that dotted line, but what happens next? When you start paying back your car loan, you’ll notice that you’re charged interest every month. If you’re not quite sure how to calculate interest rate on a car loan, there’s no need to worry! Read on to learn the basics of interest rates with Sames Bastrop CDJR near Giddings and get a head start on the financing process from home!

What is Interest?

Before we get into the nitty-gritty of how to calculate interest rate on a car, let’s start out with the fundamentals. When you sign up for a car loan, you pay a monthly fee to slowly pay off the loan and gain equity. But initially, it’s your lender that officially owns the vehicle. Your interest is the fee you pay to the lender for this exchange over time. However, many factors go into the calculation of your personal interest rate:

  • Principal Amount: This is the total amount that you wish to borrow from the lender.
  • Loan Terms: This is the duration of the car loan. Shorter terms usually have lower interest rates with higher monthly fees, while longer terms have higher interest rates and lower monthly fees.
  • Repayment Schedule: While most people pay off car loans in monthly installments, others prefer to pay more frequently to shorten the duration of the loan and save money.
  • Repayment Amount: The money you pay off on your loan goes toward both the principal amount and the interest, so the more you pay, the closer you are toward ownership.

Step 1: How to Calculate Auto Loan Interest Initially

Your first loan payment will involve a slightly different calculation than your ongoing payments.

  • Divide your interest rate by the number of annual monthly payments.
  • Multiply this figure by the whole principal amount.
  • This number will be your amount of interest for the first month.

Step 2: How to Figure Interest on a Car Loan for the Future

After you’ve paid your very first bill, you’ll need to adjust your calculations slightly. While this won’t be a precise figure, it’ll give you a good estimate to keep your finances in check!

  • Find out how much you’ve paid off the loan principal. Subtract your calculated interest from the payment you just made.
  • Subtract this figure from your original principal.
  • This number will be your new loan balance.

Trust Sames Bastrop CDJR for your Auto Financing Needs

Whether you’re stopping by from Del Valle or Giddings, the staff at Sames Bastrop Chrysler Dodge Jeep Ram would be happy to help you with your next car purchase! We offer online resources like our Payment Calculator and Value Your Trade tool for free to help you budget like a pro. Need more assistance? Contact us or swing by Cedar Creek for custom advice!


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Sames Bastrop Chrysler Dodge Jeep Ram

1586 TX-71 Cedar Creek, TX

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Sames Bastrop Chrysler Dodge Jeep Ram
Sames Bastrop Chrysler Dodge Jeep Ram
1586 TX-71
Cedar Creek, TX, 78612 US
​(512) 772-4866
https://di-uploads-development.dealerinspire.com/samesbastropchryslerdodgejeepram/uploads/2018/12/SamesBastropOGImage.png
Sames Bastrop Chrysler Dodge Jeep Ram 30.1259126, -97.4388706.