How to Calculate the Interest Rate on a Car Loan

Hands Doing Calculations with Calculator

While an auto loan in Peoria can make it possible for you to get the new Nissan you’ve been looking for, it always comes with the added expense of the interest rate. When you know how to calculate the interest rate on a car loan, you can save yourself a potential unpleasant surprise. Knowing how to calculate the interest rate on a car can also give you the opportunity to accurately budget for your next vehicle. Learn how to calculate auto loan intertest with Avondale Nissan.


What is an Interest Rate?

When you purchase a car in Phoenix with an auto loan, the lender will technically own that vehicle. Interest is, essentially, the monthly fee you pay for borrowing the money. Multiple factors can influence your interest rate, and you’ll want to understand them before you learn how to figure the interest on a car loan. They are:

  • Principal Amount: The amount of money you want to borrow.
  • Loan Term: The amount of time you’ll take to pay off the loan. Shorter loan termswill usually have higher monthly payments, but less interest paid in the long run. With longer terms, you generally have lower monthly payments, but end up paying more in interest the long run.
  • Repayment Schedule: Most car payments are done monthly, but if your lender might allow you to make more frequent payments, which can make your interest lower by the end of your loan term. Ask about this before signing your loan papers.
  • Repayment Amount: The combined principal amount and interest amount.

How to Calculate Auto Loan Interest for First Payment

Your first auto loan payment in Surprise will differ a bit from the rest of your payments. Here’s how to figure the interest on a car loan’s first payment:

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

How to Figure Interest on a Car Loan for the Remaining Payments

Once you have started to pay down your initial principal you need to calculate your new balance to work out the interest you pay in the following months. To do this:

  1. Subtract the interest you paid in your first payment from the payment you just made and this will leave you with the amount that you have paid off the loan principal.
  2. Deduct this total from your original principal to get your new loan balance.

Finance Your Next Car with Avondale Nissan

Even if you have less-than-perfect credit, Avondale Nissan offers the opportunity to get great auto loan financing in-house! You can get started when you apply for financing with us from the comfort of your home.


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