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How are interest rates calculated on car loans?
I’m shopping around for car loan rates, but I’m not quite sure how lenders decide on interest rates. How are interest rates figured on car loans?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
A
car loan
uses simple interest, which is far easier to understand and calculate than some types of compound interest. To calculate interest on car loans, use an online car loan calculator or an amortization schedule. You can find these via a quick Google search.Lenders use several factors to determine your interest rate, including:
- Credit score
- Credit history
- Debt-to-income ratio
- Income
- Loan term/length
- Amount of the loan
- Loan-to-value ratio
The reason you should opt for the calculator or amortization if you want to know monthly or total interest is because monthly car loan payments fluctuate based on your current principal. Therefore, your first monthly payment will go more toward interest than any other payment. Each month, more money will go toward the principal and less toward interest until you pay off the loan.
A good way to visualize this is with an amortization schedule. An amortization schedule is a table of monthly payments that shows the amount of principal and the amount of interest paid each month. By using this schedule, you can get a better idea of what your interest will be on a car loan.
And just as you would prior to getting a car loan, make sure to shop around for
car insurance
with the Jerry app to save the most money possible.As a licensed broker,
Jerry
helps you find and compare quotes from over 50 top providers in minutes. When you find a better rate, Jerry can help you buy your new coverage and even cancel your old policy!View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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