How to Calculate the Interest Rate on a Car Loan

Couple buying a car


Anytime you take out a car loan, no matter if in Rome or Canton, you’re going to be charged interest, but how much does your interest rate impact your monthly payments? Learn more about this and other interest rate tips such as how to calculate interest rate on a car loan, courtesy of the Riverside Buick GMC finance department.

What is an Interest Rate?

It’s important to know what interest is as well as the factors that impact it before learning how to figure interest on a car loan. If you purchase a car on credit, your lender owns your vehicle until it is paid off. The interest rate you pay is basically a fee you pay the lender for using their money to purchase your vehicle. The interest rates you end up paying your lender are based on a few factors including:

  • Principal Amount: The principal amount is the dollar amount you are looking to borrow.
  • Loan Term: This means the length of time you will be repaying the loan. In general, shorter loan terms equal higher repayments monthly, 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 interest, 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.

How to Calculate Auto Loan Interest for First Payment

When trying to figure out how to calculate auto loan interest for the initial payment, don’t stress. It’s simple when you use this quick calculation:

  1. Divide your interest rate by the number of monthly payments you will be making in 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, but you can also use our handy payment calculator to help you do the math.

How to Figure Interest on a Car Loan Going Forward

Once you place the down payment, you’ll need to calculate your new balance as well as the interest you’ll be paying in the following months. Here’s how to do this:

  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.

We are humans and when doing this math and rounding, you won’t have an exact calculation, but this gives you a good basis for how to calculate the interest rate on a car loan in the future.

Get Help From the Financial Professionals at Riverside Buick GMC

While it can seem a bit overwhelming, the financing professionals at Riverside Buick GMC are more than happy to help you find the lease or loan you’re looking for. We can also help you learn how to calculate interest on a car on your own before making your way in. Use our online payment calculator tool or contact Riverside Buick GMC to have our finance team help.

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Riverside Buick GMC

125 S Dixie Ave Cartersville, GA

Phone: 770-382-5910

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125 S Dixie Ave Cartersville, GA

Sales

Phone: (770) 383-1821

125 S Dixie Ave Cartersville, GA

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Phone: (770) 383-1821

125 S Dixie Ave Cartersville, GA
34.1627941 -84.7896022
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Riverside Buick GMC
Riverside Buick GMC
125 S Dixie Ave
Cartersville, GA, 30120 US
770-382-5910
https://di-uploads-development.dealerinspire.com/riversidebuickgmc/uploads/2018/04/RiversideBuickOGImage.png
Riverside Buick GMC 34.1627941, -84.7896022.