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How To Calculate Interest Rate on a Car Loan

If you live near Hoboken and looking for a car loan, you should know your interest rate. There is nothing worse than making plans for an auto loan and getting hit with interest. At Metro Honda, we believe you deserve to feel confident. You can turn to us when you need to know more about car financing; we are here to help.

What Is an Interest Rate?

To understand a car loan, you need to know that there is an interest rate. Your interest rate will differ from your Newark neighbor. Thus, understanding your interest rate is essential. An interest rate is a fee you pay the lender for borrowing their money. After all, a car loan is borrowing money from a lender. They own the car until payment is complete. To calculate the interest rate will depend on these factors:

  • Principal Amount: The total amount you wish to borrow with your auto loan.
  • Loan Term: The set amount of time to repay your short-loan. For example, short-term loans have higher monthly payments with less interest to pay at the end. Long-Term loans have lower monthly payments with higher interest to pay at the end.
  • Repayment Schedule: Most auto loan payments are made monthly. You can save money in the long-run if you can make frequent payments. You pay less interest when you make more payments.
  • Repayment Amount: A part of every payment you make goes to your interest and the other to repaying your principal amount.

 

How to Figure Interest on a Car Loan for First Payment

There is a calculation to figure an interest rate. Here is the calculation:

  • Divide your interest rate by the number of monthly payments per year.
  • Multiply the monthly payment by the balance of your loan. However, for the first payment, this will be your total principal amount.
  • The amount you calculate is the interest rate you will pay for your first month’s payment.

How to Calculate Auto Loan Interest for the Coming Months

To calculate future auto loan interest payments, you will need a different calculation:

  • Subtract the interest from your current debt. The amount left is what you owe towards your loan principal.
  • Deduct the above amount from your original principal to get your new loan balance.

The calculation is an estimate of what you will pay towards an auto loan. Use the amount as a reference or guideline; it may not be the same amount you receive.

Need Help with Your Car Loan? Consult with Metro Honda

Whether you live in or near the Bayonne area, Metro Honda can assist you with your car loan. If you are a first time buyer or have any questions on trading-in a financed car, contact our Finance Department. Feel free to use our online car payment calculator! If you are looking to upgrade your Honda, we have new Honda vehicles for you to find your best match!

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