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How to Calculate the Interest Rate on a Car Loan

When you take out a loan for a new vehicle for your Hannibal, MO commute, you’ll be charged interest over time. It’s important to know how much the interest rates you’re charged impact your monthly payments and the overall amount owed. Luckily, the finance center at Shottenkirk Kia of Quincy can show you how to calculate auto loan interest rates, so you can know what you’ll end up paying. When you take out your next loan, do so with confidence after learning how to figure interest on a car loan with Shottenkirk Kia of Quincy. 



What Does Interest Rate Mean?

Before we dive into how to calculate interest rates on a car loan, let’s go over what interest rates are. If you buy a new vehicle for your Keokuk, IA drives with credit, then the lender technically owns the vehicle until the credit is paid off. The interest rate you pay on top of the loan payment is essentially a fee for borrowing the money from the lender. 

What determines the interest rate amount? Several factors determine the interest paid on a loan, including: 

  • Principal Amount: This is the amount of money you want to borrow.
  • Loan Term: This is the amount of time you plan to pay off the loan. Longer terms mean lower payments with higher interest, and shorter terms mean higher payments with lower interest. 
  • Repayment Schedule: If you can make payments more than once a month, then you’ll end up having less interest and paying less over time. 
  • Repayment Amount: The amount you pay towards interest and the amount you pay towards your principal amount is what makes up your total monthly payment. 

How to Calculate Auto Loan Interest 

When trying to figure out how to figure interest on a car loan for the first payment, you’ll want to use these steps: 

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

This formula will help you figure out how much interest you’ll pay for the first month. If you want to know how to calculate auto loan interest going forward, then follow these steps: 

  1. Subtract the amount of interest from the first payment. This leaves you with the amount you’ve paid off of the loan principal amount. 
  2. Reduce this amount from your original principal amount to get the new balance of your loan. 

You may not get an exact number every time, but for the most part, that’s how you calculate the interest rate on a car loan. For more finance tips and advice, visit Shottenkirk Kia of Quincy near Pittsfield.

Get the Finance Advice You Need at Shottenkirk Kia of Quincy

Contact us to get all of the financial advice you need, and apply for financing for your next auto loan online at Shottenkirk Kia of Quincy. 

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Shottenkirk Kia of Quincy 39.947606, -91.377104.