Looking to understand the total cost of financing? Learning how to calculate car loan interest is simple. To find the total cost of financing your car, multiply the amount borrowed (principal) by the annual interest rate (expressed as a decimal) and then multiply by the number of years of the loan. This will give you the total interest you’ll pay over the life of the loan.
Car Loan Interest Calculator
Financing can be a great way to help you get into the vehicle you need when you need it. However, in most cases, financing a car will cost you more in the long run. For this reason, many car buyers try to get the lowest possible financing rate to drive down the total cost of borrowing. When looking to understand your financing options, you’ll want to know how to calculate interest on a car loan so that you can better understand your monthly payment and overall cost. Thankfully, learning how to do this is straightforward.
At Autorama, we are dedicated to helping our customers drive cars they love that perfectly suit their budget and lifestyle needs. When looking for used cars for sale in Toronto, we are your best option and work hard to find the right car for you. In this post, we cover the basics of how to calculate interest for car loans and help you feel more informed about your choice to finance your next vehicle.
For more information on the auto financing process, see our posts, What Credit Score is Needed to Finance a Car, and What Do I Need to Finance a Car?
How to Calculate Interest on a Car Loan
To calculate interest on a car loan, you’ll need to have a basic understanding of the terms used in financing, including principal, annual interest rate, and loan term. Principal refers to the amount you are borrowing, or in other terms, the cost of the car minus any down payment or trade-in. Annual interest rate, or interest rate, refers to the percentage the lender will charge you for borrowing. Finally, the loan term refers to the total time it will take you to repay the loan.
To calculate the cost of borrowing, you’ll need to convert your interest rate from a percentage to a decimal. For example, an interest rate of 5% will need to be converted to 0.05 for the calculation. Next, multiply the cost of borrowing your car (principal) by the decimal version of your interest rate. Finally, you will multiply the result of your calculation by the length of time it will take you to pay off the loan (term).
An experienced and transparent used car dealership will walk you through the financing process and help you understand your monthly payments as well as the cost of borrowing. Do not hesitate to ask questions about the cost of borrowing and any auto loan refinancing options that may be available in the future. At Autorama, we look forward to helping you find a financing rate that makes sense for your budget while also allowing you to drive a car you love. Apply for auto financing online to get started, and let our expert sales team help you discover the car and financing option that is right for you.
Also, see our post, Should You Refinance Your Car Loan? What You’ll Want to Know, for more information on your options for financing in the long-term.
