How to Calculate the Interest Rate on a Car Loan

calculate interest rate

Taking out an auto loan can be a stressful experience, but when you know what to expect from your monthly payments, the whole process becomes a lot more manageable. That’s why we’re happy to teach our Springfield and Alexandria neighbors how to calculate the interest on a car loan. When you drive with Lindsay Volkswagen of Dulles, you’ll never have to go it alone.

  • The Principal Amount is the total dollar amount you’ve borrowed. All other things being equal, borrowers with a higher principle will tend to pay more in interest.
  • Your Loan Term is the agreed-upon amount of time you’ll have to pay back the loan in full. You and your lender will agree on a term, so remember: Shorter terms mean higher monthly payments, but allow you to pay less in interest over time.
  • Your Repayment Schedule is the rate at which you make payments. Most car loans are paid off month-to-month, but in most cases, there’s no rule that says you can’t pay more. If you make payments more quickly, you’ll save big on compounding interest.
  • Your Repayment Amount is the dollar amount of each payment. With each installment, you’ll put some money towards the car loan principal, and some money towards the interest.
  • Want to get a basic idea of how much you’ll pay in interest? Use our car payment calculator for an instant estimate.

    How to Figure Interest on a Car Loan: First Payment

    If you’d like to know how to figure interest on a car loan, the first thing you should know is that your first payment will be a little different from the rest. Use this quick calculation:

    1. Take your interest rate, and divide it by the number of monthly payments you’ll make this year.
    2. Multiply the result by the balance of your loan. Since this is the first payment, that balance will be the total principal amount. 

    How to Figure Interest on a Car Loan: Month-to-Month

    In any given month, the amount of interest you pay will be basically equal to your interest rate, divided by the number of payments you’ll make this year, times the remaining loan balance. So, if you want to figure interest on a car loan after the first month, you really only need to learn how to get your new loan balance:

    1. In every payment installment, some money goes to interest, and some goes to pay off the principal. 
    2. For each month after the first, you’ll take your last payment, minus the amount of interest you paid last month, and deduct the result from your loan balance. 
    3. Then, divide your interest rate by the number of payments you’ll make this year, and multiply that result by the remaining loan balance you’ve just calculated. 

    The final number is the amount which you’ll pay on interest in the next month. Even with human error, you’ll still end up with a pretty good estimate! It’s that easy to drive with confidence on the roads near Tysons Corner.

    Let the Lindsay Volkswagen of Dulles Finance Team Do the Work!

    The finance team at Lindsay Volkswagen of Dulles is here to help, and if learning how to calculate the interest rate for a car seems daunting, know that we’ll be with you each step of the way. You can even apply for financing online to get the process rolling today!

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