How to Calculate the Interest Rate on a Car Loan

If you’re working within a strict budget while shopping for your next vehicle around Niagara, you’ll want to learn how to calculate auto loan interest using our car loan calculator method. This is a necessary step in determining exactly how much your monthly payment will be for each vehicle. Take a moment to learn about how to figure out interest on a car loan using our car loan interest calculator method! Then, apply for financing and contact Performance Mercedes-Benz to further discuss your options in St Catharines! And hesitate to reach out if you have any questions about using our vehicle loan calculator method along the way!

What is an Interest Rate?

When determining how to figure out the interest rate on a car loan, you need to know what an interest rate is in the first place. No shame, if you don’t. Most Niagara-on-the-Lake drivers who purchase a car take out a loan to cover its value, which they pay off over time. Your lender will charge you a fee for providing you with a loan. This fee is called an interest rate; it’s a percentage of your monthly payment that goes to the lender as a profit.

On a side note, the remaining balance on your loan sans interest is called the principal. A portion of every payment you make will pay the interest, but the rest of your payment will chip away at the principal. When it comes time to sell your car, any funds that you receive that exceed the principal are yours to keep! With that out of the way, let’s explore the steps of using the car loan interest rate calculator method.

How to Calculate Auto Loan Interest

Now that you know what an interest rate is, it’s important to know that the smaller your loan is and the less time you take to pay off your loan, the less interest you pay. That is to say that, if you choose a shorter loan term and put a larger down payment towards your auto loan, you’ll pay less overall interest.

Furthermore, your interest rate is determined by your credit score. You can apply for pre-approval to get a good estimate of what your interest rate will be when you receive a loan. Once you’ve received an estimated interest rate, you’ll first need to know how to figure interest on a car loan for the very first payment you make towards your loan using our vehicle loan calculator method. To do so, follow these steps for how to calculate auto loan interest rates. Our car loan interest rate calculator method is as follows:

1. Divide your interest rate by the number of payments you’ll make towards your car loan this year.
2. Then, multiply that figure by the balance of your loan, which is the entire principal (because, at this point, you haven’t made any payments towards the loan).

How to Figure Interest on a Car Loan Going Forward

You know how to calculate an interest rate on a car loan and how to calculate overall auto loan interest for the first payment using our vehicle loan calculator method. Now, let’s take a look at how to calculate interest for the remaining payments of your auto loan:

1. Take the interest you calculated for the first payment, and then, subtract it from the first payment you just made. This will leave you with the amount of money you actually paid towards the principal of your loan.
2. Take this figure and deduct it from the total principal, and repeat the steps of the previous section to determine your new overall interest with the new loan balance.

How to Prepare for Loan Term Negotiations

If you’d like to ensure you pay as little interest as possible, there are a few things you can do. These include:

• Making a large down payment means that the principal on your loan will be smaller. The smaller your loan is, the faster you’ll pay it off, which means you’ll pay less interest overall. You can boost the size of your down payment by trading in a previous vehicle for credit!
• If you can boost your credit score before applying for a loan by paying off a few creditors, you’ll be in a better position to receive flexible and accommodating loan terms and a lower interest rate.
• Apply through multiple lenders. Then, you use the loan terms with the lowest interest rate as leverage to bargain with other lenders to see if any will go lower.

Discuss Auto Financing With Performance Mercedes-Benz in St Catharines

Now that you’ve read about how to calculate interest rates on a car loan and how to calculate total auto loan interests with our car loan interest rate calculator method, we understand if you’re overwhelmed. Don’t hesitate to reach out to the financing department at Performance Mercedes-Benz for help. Our financiers can walk you through the process of how to calculate interest rates on a car loan, help you identify the best financial options for your needs, and explain interest rates with total transparency. While you’re here, be sure to explore our new vehicle specials to see how much you can save near Pelham!