How to Calculate Interest Rate on a Car Loan

Don’t know how to calculate the interest rate on a car loan? Many Lexington and Columbia drivers on the market for a new vehicle know that car loans are useful tools, but aren’t sure what to expect when they make a credit application Honda of Columbia demystifies the question of how to calculate interest rate on a car below!

How to Calculate Auto Loan Interest: Keywords

Knowing how to calculate auto loan interest involves the use of a few basic vocabulary terms. Keep the following keywords in mind when shopping in Irmo.

• The Principal Amount is the amount you are borrowing.
• A shorter Loan Term usually is a cost-saving method, even though it results in higher monthly payments. Know this when you are setting up your ideal loan term!
• Repayment Amount: There is a part of your monthly payment that goes toward repayment of your principle and part of which goes towards paying off interest.
• Figuring out how to calculate auto loan interest involves keeping these two factors in mind.
• Repayment Schedule: This is often a monthly schedule, but know that more frequent payments are good for keeping your interest down.

How to Figure Interest on a Car Loan: Simple Steps:

• How to figure interest on a car loan for the first payment: For your first payment, divide the interest rate by the number of payments you’ll make in a year (12 or more). Then multiply that by the balance of your loan — the principal amount.
• How to figure interest on a car loan for future payments: Subtract the interest from your payment amount to calculate how much you’ve paid off the principal amount. Now you can see the difference your payments make in both categories — principal and interest!

Find More Auto Finance Help with Honda of Columbia!

Now that you know how to calculate the interest rate on a car loan, you can explore your payment options, trade-in value, and more at a dealership with a finance center. At Honda of Columbia we’re happy to help drivers from Lexington to West Columbia with tips on car financing with our FAQ page and many more resources. Please contact us with all of your car loan questions! While you’re here, be sure to read our overview of whether or not you can lease a car with bad credit.