How to Calculate the Interest Rate on a Car Loan

calculating a car loan

Some of us weren’t the best at math in school, so when it comes time to sit down with the dealer and hash out the interest rate on a loan, it might be a challenging task. Financing your car in Schaumburg is as important as selecting the model or trim level that you want because it is a crucial step in the whole process of getting behind the wheel. That’s why knowing how to calculate auto loan interest is of utmost importance.

It doesn’t take a math genius to figure out why Biggers Chevrolet is the best Chevy dealer in town. We’ve got sales staff that know the car buying process inside and out, ensuring that when you’re in our showroom or out on our lot, you’ll be taken care of from start to finish. After we tell you how to calculate the interest rate on a car loan, you can plug your numbers into our payment calculator to see how easy it can be to get you driving around Streamwood.

What Goes Into a Loan?

Learning how to calculate auto loan interest involves a few steps. There are several different components that come together to result in your monthly payment. These factors are as follows:

  • The principal amount, or the amount that you plan on borrowing
  • The loan term, or timespan over which you will pay your loan back. A shorter-term means higher payments but less interest. A longer-term means lower payments but higher interest, and compound interest can add up over time.
  • Repayment schedule, or time between payments. Most of the time, you make your payments monthly, but if you make multiple payments over the course of the month, you can save on interest in the long run.
  • Repayment amount. When you make a payment, it gets split between payment on the principal and payment on the interest.

Calculating Your First Month’s Payment

Here’s how to figure interest on a car loan for your first month.

  1. Divide your interest rate by the number of payments you’ll be making over the next 12 months.
  2. Multiply it by the balance of your loan. For the first payment, this will be the whole amount owed on the car.
  3. You now have the interest you’ll pay on your first month’s payment.

Calculating Interest On A Loan Going Forward

Going forward, you can use the remaining principal to learn how to figure interest rate on a car loan the using these steps.

  1. Subtract the interest you just computed from the payment you just made. This gives you the amount you’ve paid off the loan principal.
  2. Subtract this total from your loan principal to get your new balance.

You Can Trust Biggers Chevrolet for All Things Automotive

Now that you know how to figure interest rate on a car loan, don’t make driving through Bartlett any more of a hassle than it needs to be. Come on down to our showroom and we’ll walk you through how to calculate the interest rate on a car loan and the entire process of buying that next car. 

We have a host of specials sure to appeal to anyone. If you’d like to see for yourself what makes the car buying experience the Biggers Chevrolet way so special, contact us and we’ll be in touch.

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