How to Calculate Interest Rate on a Car Loan

Whenever you take out a vehicle loan around Nederland, interest will be charged. Are you asking, “How to figure interest on a car loan?” and how it will impact your monthly payments? 

At Classic Buick GMC Beaumont, our finance team has received a lot of questions about how to calculate auto loan interest, among other topics. In this guide, we’ll discuss how to calculate the interest rate on a car loan. If you have additional questions, call us at (409) 291-4752 or reach out online.

What is an Interest Rate?

Before delving into how to calculate the interest rate on a car, it’s important to have a proper definition. When you buy a Buick, GMC vehicle on credit, your lender owns the model until it’s fully paid off. Your interest rate is the fee you’ll be paying the lender for using their money to buy that model. The interest rate you end up paying your lender is based on multiple factors, including:

• Principal Amount: This is the dollar amount you are looking to borrow.
• Loan Term: This refers to the length of time you will be repaying your loan. In general, shorter loan terms will lead to higher repayments, but lower interest paid in the long run. By contrast, longer terms have lower monthly payments, but higher interest at the end.
• Repayment Schedule: Most car payments are done monthly, but if you can make them more often, it saves you money. Thanks to compounding, when you make more payments, you’ll pay less interest. 
• Repayment Amount: Every car loan payment you make will have a portion going to interest and a portion for repaying your principal.

How to Calculate Auto Loan Interest For Your First Payment

When it comes to how to calculate your interest rate on a car, the most important step is your first payment, You can do this by using this quick calculation: 

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

As a result, you will have the amount of interest you pay the first month. Providing you with the most straightforward way of understanding how to calculate your interest rate on a car.

How to Figure Interest on a Car Loan Going Forward

Now that you know how to calculate the interest rate on a car loan, it’s important to remember how to figure interest on a car loan over time. Once you’ve begun paying down your initial principal, you’ll need to calculate your new balance to work out how much interest you’ll pay soon. You can do this by: 

1. Subtracting the interest you’ve just calculated from the payment you have just made, leaves 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. 

While number rounding and possible human error might lead to your calculation not being exact every time, this does provide a strong basis on how to calculate the interest rate on a car loan.

Get Help From The Financial Professionals at Classic Buick GMC Beaumont

Now that you know how to calculate the interest rate on a car loan, turn to our Beaumont dealership for all your financial needs. Whether you’re choosing a new or certified pre-owned model, our experts will walk you through every step of the process.

You can use our payment calculator to determine how much you’ll be paying or start the application process securely online.