How Does Auto Loan Interest Get Calculated?

  • Understand how to calculate the interest on a car loan before you accept any financing. Each company has its own way of calculating interest on car loans. However, there are fantastic deals that can to be sought out and lots of options available. To find out how much your car is really costing you, calculate the total cost of the car and the interest paid on it.

  • Write down the amount the bank agreed to give you. This is the principal amount. With most financing companies, there's an initial down payment that has to be paid by the person seeking the loan. This is known as equity contribution and no interest is charged on it. The interest is normally calculated based on the principal amount.

  • Find out your interest rate or percentage. This information can be found on your car loan papers or you can contact the lender.

  • Know the duration of the loan to calculate the total interest rate. The duration or tenor of the loan is usually between two to five years, depending on the financial institution. For the calculation, convert the number of years of the loan into an equivalent number of months.

  • To complete your calculation, you may need to use an online calculator. All the numbers needed for your calculation are ready at this time to be punched into the online calculator. You may also choose to do this manually by using a mathematical formula.

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