SJ Denham Chrysler Jeep Dodge Ram

How to Calculate the Interest Rate on a Car Loan


Bringing a new vehicle home to Redding can be an incredibly exciting experience. What may be less thrilling for most Redbluff drivers is learning how to calculate interest rate on a car loan. With any auto loan, the borrower will be charged interest. This is an important factor to consider when setting your monthly budget. We offer an online payment calculator to help you stick to your fiscal plan, but how much will your monthly payment be impacted by interest? Find out how to figure interest on a car loan with SJ Denham Chrysler Jeep Dodge Ram below!

What is an Interest Rate?

When learning how to calculate the interest rate on a car loan we first need to establish what interest actually is. If you purchase a vehicle with the help of a lender, they are the technical owner of the vehicle. Each month as you make your payment towards becoming the true owner of the vehicle, the interest you pay is essentially a fee collected by the lender for allowing you to use their funds. When looking at how to figure interest on a car loan, Yreka drivers need to be aware of a number of factors including:

  • Principal Amount: This is the dollar amount you intend to borrow.
  • Loan Term: The term is the length of time you agree to make payments for. With a shorter loan term, you will see higher monthly payments but less interest. A longer-term agreement may be more budget-friendly on a month to month basis, but you will end up paying more in interest in the long run.
  • Repayment Schedule: Typically, borrowers agree to make payments once a month. However, if you are trying to determine how to calculate interest rate on a car, you will soon see that more frequent payments will help you save on interest. If you are able, you can make multiple payments a month which will help you reduce your interest paid, thanks to compounding.
  • Repayment Amount: Every payment you make is compartmentalized. A portion of the payment will go towards paying down the principal, the other will go towards interest.

How to Calculate Auto Loan Interest for First Payment

Determining how to calculate the interest rate on a car will be unique in regards to your initial payment. Quickly calculate the auto loan interest for your first payment by following these steps:

  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.

The resulting figure is the amount of interest you will pay in month one of your loan term.

How to Figure Interest on a Car Loan Going Forward

After the initial payment, you can calculate your new principal balance in order to determine the interest rate with these steps:

  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.

Learn More About How to Calculate the Interest Rate on a Car With SJ Denham CDJR

If this process seems a bit overwhelming, no need to panic! Our finance experts are standing by to help you learn how to calculate the interest rate on your car loan. We offer a host of financial and auto services at our dealership in Mount Shasta and can handle all of your car care needs. You can even take advantage of our online financing application to get pre-approved from the comfort of your own home! Contact us today and we will be happy to help!

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SJ Denham Chrysler Jeep Dodge Ram 41.3088008, -122.3112846.