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How does APR work on a car loan?
I think I understand what APR is, but I’m not sure how it works for a car loan. Is it the same as an interest rate?
Liz Jenson · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
APR works almost the same way on a car loan!
Just like
APR
(or the Annual Percentage Rate) on other loans, a car loan’s APR includes the interest rate and any additional fees you’ll have to pay each year. In general, 2.49% is considered a good APR. That said, it varies depending on your credit score. APR can work in two ways:- Simple interest. For these types of loans, APR is calculated by the remaining amount of principal (the loan amount before interest and fees) that remains after each payment. You’ll pay less of the APR and more of the principal as your loan ages.
- Precomputed interest. For this, the APR is divided evenly across all loan payments. If your loan has precomputed interest, you’ll pay the same amount of interest and principal each time. Making early or large payments won’t save you money on interest like it would with a simple interest loan.
It can be hard to find the right car loan, but it’s easy to find the right insurance policy for your new vehicle with the
Jerry
app! Just download the app and answer some quick questions to see your policy options in a comprehensive list. When you find a quote you like, Jerry can help you cancel your old policy and sign up.View full answer
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