How is car finance APR calculated

How is car finance APR (Annual Percentage Rate) calculated

Car financing is a process in which the customer in given some money and you pay back the amount over a certain period. For borrowing the money, you have to pay interest during paying back. There are different interest rates in car financing which include APR, APY, Interest rate, etc. APR stands for Annual Percentage Rate. In car financing, unlike the name suggests, it means the percentage rate of entire time when you borrow and pay back the money. The rate that gives the percentage rate annually is called the Interest rate or note rate. Annual Percentage Yield (APY) includes the cost of compounding the interest as well. APR is the highest interest rate value among these.

There is a way that the Annual Percentage Rate is calculated by the banks. It involves different values and a formula that gives you the total sum of the interest that you pay from day one to the end of the deal. It also includes the annual cost of financing the car. APRs help you compare different lenders and decide which one suits you better. Lower the APR, better the deal since it would mean you have to pay the least amount of interest over the original amount. A more accurate way of comparison will be APY since it includes all possible finances. This lets you achieve a more accurate amount.
Annual Percentage Rate is calculated using the total amount of loan and the interest rate that applies to a monthly payment. The total payment is multiplied by interest percentage, divided by 100. This gives the percentage of total payment that will be paid as interest. In, total you pay the whole amount as well as this interest. If this APR amount is divided by 12, it gives the monthly payment which is also the Interest or Note rate.

If you wish to calculate the Annual Percentage Rate or the amount of interest that has to be paid, you can use the formula. Or for ease, there are many online APR calculators available. Some banks offer their specific APR calculators as well.

How is car finance APR calculated
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How is car finance APR calculated
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