How Do You Figure Interest Rates on Automobile Loans?

Though not common because most car loans have shorter terms, refinancing the loan at a lower interest rate might be advantageous if your interest rate is high enough. If you do not know your current interest rate, you cannot determine whether you would benefit from refinancing at market rates. You can figure the current interest rate on your car loan as long as you know how much you owe and how much interest you paid.

Things You'll Need

• Calculator

Instructions

1. Find the previous balance of your car loan and the amount of your last payment that went toward the interest on the loan. You can find this on your loan statement or by contacting the institution that lent you the money. Do not use the total loan payment, only the interest portion.

2. Divide the interest paid by the outstanding balance of the loan to find the monthly interest rate. For example, if your previous balance was $12,600 and the interest portion of the payment was $95.55, divide $95.55 by $12,600 to get 0.007583333.

3. Multiply the monthly interest rate by 12 to find the annual interest rate. In this example, multiply 0.007583333 by 12 to get 0.091.

4. Convert the annual interest rate from a decimal to a percentage by multiplying by 100. Completing the simulation, multiply 0.091 by 100 to get 9.1 percent.

References

• Foner Books: How to Calculate Mortgage Amortization
• Rural Finance: Interest Rates and Self-Sufficiency