How to Calculate Interest Rate on a Car Loan

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Los Angeles drivers interested in the new Porsche range are a little more discerning than others, which is why so many are interested in learning how to figure interest on car loans. Depending on credit history and other financial information relevant to your lender, you’ll likely confront many possibilities on your search around Glendale. There is a range of factors to consider, so the Rusnak/Pasadena Porsche finance specialists have created this comprehensive guide on how to calculate the interest rate on a car loan.

An Introduction to Interest Rates

Learning how to calculate the interest rate on a car loan begins with an introduction to the terms you will encounter as you search around Arcadia. First, it’s important to understand that when you purchase a vehicle with credit, your lender technically owns the car until you finish repaying the loan, though you are authorized to use the vehicle. An interest rate functions as a payment for incurring risk throughout the terms of the loan. See below for the terminology essential to discovering how to calculate auto loan interest:

  • The Principal Amount is what you borrowed originally to purchase your vehicle.
  • A Repayment Schedule, typically monthly, is a way of keeping payments aligned to pay off the principal and added interest.
  • The Repayment Amount is what you pay each month. This is a combination of a percentage of the principal amount borrowed and the calculated interest.
  • Understanding the Loan Term, or expected length it will take you to pay off the principal amount and interest accrued, is crucial to learning how to calculate auto loan interest.
  • A shorter Loan Term means you’ll pay your loan off faster, which also means you’ll accrue less interest.
  • A longer Loan Term is more affordable because the repayment amount will be lower, but you’ll end up paying more in the end.

How to Figure Interest on a Car Loan: First Payment

With a couple short operations, you can easily calculate the amount of interest you’re compensating for on your first loan repayment:

  1. Divide your interest rate by the number of payments you will make per year.
  2. Multiply that number by your loan balance, which will be the entire loan amount for the first payment.

How to Figure Interest on a Car Loan: Future Payments

A little more complicated are the later repayments, but finding out how to calculate interest on a car loan is still relatively simple with the following steps:

  1. Subtract the interest from your latest payment to find out what your principal balance is.
  2. Subtract this total from your original principal to find your new balance.

Rusnak/Pasadena Porsche, The Loan Experts in Pasadena

Whether you’re wondering how to calculate the interest on a car loan or interested in valuing your trade for that next luxury upgrade, the Pasadena finance specialists have the expertise you need. Shop confidently for your next vehicle when you contact Rusnak/Pasadena Porsche to answer any of your financing questions. You can even apply for financing from the comfort of your own home today! We’ll help you secure finance and choose between the Porsche Macan vs. Porsche Cayenne today.