How to Calculate APR on a Car Loan
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What Is APR?
Calculating Your Car Loan’s APR
1. Gather Key Information
Principal: This is the amount of money borrowed. When you’re calculating APR, you can think of principal as the price of the car minus your down payment and the value of a trade-in vehicle (if you did trade one in). Interest Rate: This represents the percentage charged on top of the principal each year. In your DIY calculation, this may be an estimated value. Loan Term: This is the length of the auto loan, usually expressed in months or years. You may want to learn more about the average car loan length. Fees: Any additional costs, such as origination fees, are factored into the APR, so you’ll need to know what those are, too. Taxes: Applicable state, county, and city sales taxes can be rolled into a car loan.
2. Run the APR Equation
I = Interest, taxes, and fees P = Principal T = Term (in days)
How Do Auto Lenders Calculate APR?
Down Payment: The amount of money you put down for an auto loan could help secure a lower interest rate, and thus, a lower APR. Trading in your old vehicle can be a convenient way to fund a down payment. You can check online sites like CARFAX or Autotrader to get an estimate on your trade-in’s value. Vehicle Age and Condition: If you’re buying a used car, lenders can evaluate a car’s manufacture date, mileage, and general wear and tear when calculating APR. Typically, newer cars fetch lower rates than older vehicles. Loan Term: Usually, loans with longer terms also have higher interest rates. If the lender allows, paying off a car loan early can reduce the overall amount of interest you’d pay during the life of the loan. Personal Financial Situation: Auto lenders could consider personal financial information, such as how long you’ve been employed and your debt-to-income ratio when calculating what APR to offer you. Credit History: A borrower’s credit may play a large part in the APR of the loan he or she can get. Buyers with excellent credit could even qualify for 0% APR from new car manufacturers offering promotions.
Fixed vs Variable APR
Average Auto Loan APRs for Different Credit Scores
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